Earnings Season Recap #10

We have collected and timestamped quotes from Netflix, Goldman Sachs, Morgan Stanley, The PNC Financial Services Group, and an employee letter from Microsoft with interesting news. Enjoy!

Q4 2022 Y/Y Δ
Paid subs +4%
Net adds +7.7M
Revenue +2%
EBIT -13%
EPS -91%
FCF $332M (-569)

-> 21 years and 26,000% later: [About Reed’s succession announcement] Jessica, it feels like yesterday was our IPO. We were covered in red envelopes. We IPO-ed at about $1. Hopefully, some of you have held the stock, the full 21 years. And when I think of the evolution, the three of us and so many other incredible Netflix employees to go from DVD service to streaming leader in films and television and emerging player in games. And now to have over 230 million members, it's just -- well, Jim Collins probably said it best. He calls it a good start. We've had a good start. But honestly, we dream of the whole world finding their favorite entertainment Netflix, and we shorthand that as entertaining the world. And the three of us have been working together for 15 years now trying to figure out how do we get through this issue, that issue, how do we grow. And I couldn't be happier to complete our succession process. – 00:00:43 Reed Hastings, Co-Founder, Chairman, President & Co-CEO

-> Reed to become Executive Chairman: It really started about 10 years ago with the Board trying to think through how could this work. They both have such amazing talents and gifts, and to find a platform where they've been able to contribute is fantastic. About 2.5 years ago, we took a partial step. Ted as Co-CEO, Greg as COO. We continue to just make super progress. And frankly, more and more, they've been leading the company, and this is acknowledging really in formal terms how we've been operating for at least the last few quarters. It's just a great feeling. And when I think about the stock appreciation over the last decade, I know that they want to beat that record, and I'm all for that. I'll be Executive Chairman, helping them everywhere I can, but it's really theirs to lead and to do that energy and hustle and intensity that we've been doing. They're very ready. That's what's driving the timing, and so I could not be happier. So back over to you. – 00:01:56  Reed Hastings, Co-Founder, Chairman, President & Co-CEO

-> Business as usual despite the transition: So I'm proud of the work that we've done over '22 in the latter half, especially to get some more momentum into the business, but I'm even more excited about continuing to push that into '23 and follow the model that Reed has always had of continually seeking excellence and always striving to be better. So looking forward to that. And then to your specific question, Jessica, there's no big strategy shift or big culture shifts Ted, Reed and I have been working and sort of grinding through our individual on this for a long time. And so really, we look forward to taking things forward as we have been for the last little bit in responding to a dynamic industry and doing the changes that we think are appropriate. But we don't have a bank of changes that we've been holding for this moment. So mostly, it's continuity and move forward. – 00:05:41 Gregory Peters, COO & Chief Product Officer

-> Streaming is still in its infancy: And I think our ability to continue to stay focused on that because this is really - I know we've been talking about it for a long time, Jessica, but this is really in its infancy. I mean you think about as big as we've become and all these things that are happening. And in the U.S., we're about 8% of TV time still. So it's an enormous amount of growth ahead, even in markets where we are very well-established. So that's the key for us, and I think being able to focus on consumers first. And it has really been our biggest benefit, and I think it's what led us to those milestones that you just referred to. Greg? – 00:05:41 Gregory Peters, COO & Chief Product Officer

-> Engagement leads to profits: And I don't know about what the similarities, but I would say that this business is really completely about engagement, profit and revenue. So we've got to grow all of those things, and all those things are really are tied to executing on the content. When the content is working, the business is working. We grow engagement, we grow revenue, we grow profit. – 00:11:48 Ted Sarandos, Co-CEO & CCO

-> Second highest BAFTA nominations ever: All Quiet on the Western Front, which just today became the most nominated non-English film in the history of BAFTAs. Only Gandhi has got more nominations in the history of BAFTAs, and that's from Germany with the great Ed Burger. And then straight out of that into Enola Holmes 2, a big monster success, sequel with Millie Bobby Brown. [...] Any outlet would kill to have any one of those months as their entire year. And it's our ability to fire on those owners and create hits, but more than that create the expectation that as soon as you're done with this one, there's another one waiting for you. – 00:12:07 Ted Sarandos, Co-CEO & CCO

-> Ad-supported tier catching on: [On the recently launched ad-supported tier] The product experience is good, and that's really a testament to lots of hard work for both Microsoft and Netflix teams who worked very hard to make that happen, and it's really rewarding to that to see. The other, I'd say, pretty significantly fundamental thing is around engagement, and we see that engagement from ads plans users is comparable to sort of similar users on our non-ads plan. So that's really a promising indication. It means we're delivering a solid experience and it's better than we modeled, and that's a great sort of fundamental starting point for us to work with. Furthermore, now, we're seeing take rate and growth on that ads plan is solid. It's great because partly, that take rate and that growth is due to incremental subscribers coming into the service because we have a lower price point. – 00:14:55 Gregory Peters, COO & CPO

-> No cannibalizing on premium subs: Another important one, I think, for the investor community because it came up a lot before we launched was plan switching. We aren't seeing as expected much switching from high arm subscription plans like premium into our ads plan. So the unit economy remain very good as we modeled. So these are all really good initial sort of progress points, but I think it's important to reiterate that. As you mentioned, we're crawling and we'd like to get to sort of move to the walking phase. We've got a lot to do to get there. – 00:16:20 Gregory Peters, COO & CPO

-> The ad business: I just want to emphasize, it's a multiyear path. So we're not going to be larger than Hulu in year one. But hopefully, over the next several years, we can be at least as large, and we wouldn't be getting into this business obviously, Reed, as you know, if it couldn't be a meaningful portion of our business. So we're over $30 billion of revenue, almost $32 billion of revenue. in 2022. And we wouldn't get into a business like this if we didn't believe it could be bigger than at least 10% of our revenue and hopefully much more over time in that mix as we grow. So that's kind of how I see it without putting a specific guide on it. – 00:19:42 Spencer Neumann, Chief Financial Officer

-> Advertising competition: Not really. I would say that initially, we're competing mostly with that sort of traditional TV advertising pool. Now I think we can layer into that over time, components of what has made digital advertising so effective. So if you think about the targeting capability, the fact that we signed in fully addressable. If you think about the growing relevance of first-party data and how we do that, those are real big advantages that we can bring relative certainly to the traditional world. But again, the form that we have at least for the next couple of years will still be in that sort of lean back -- primarily in that lean back experience. And so that lends itself to certain kinds of advertising and certain kind of advertising goal. And a lot of the demand collection component that a Google or a Facebook is really good at. We won't be well-suited to compete with that for at least some time to come. – 00:22:10 Gregory Peters, COO & CPO

-> Revenue will regain strength: And most importantly, what we're most focused on is obviously revenue. That is our primary metric. And what you see is in the guide, these revenue initiatives between paid sharing rolling out and then scaling ads, you don't see much of that in Q1, which is why we're forecasting 8% growth, FX neutral in Q1 revenue. But throughout the course of the year, we would expect to see accelerating revenue growth as we roll out paid sharing broadly across our business and then obviously, scale ads throughout the year, which is a more gradual build. So I just want to kind of highlight that, and that's kind of what you're seeing in the guidance. – 00:29:42 Spencer Neumann, Chief Financial Officer

-> 10 million followers in one week: Our owned content, we do drive a lot of revenue in our consumer products business. But mostly, the motivation is that is to drive fandom. And Greg alluded to this earlier, but this impact on the culture that this content can have on our platform. In our earnings letter, we mentioned the Lady Gaga song came back after 11 years because of Wednesday. But that doesn't mention, the 4 songs this year that we actually jammed back into the charts, some that never charted and some that were off the charts for 40 years from Metallica, Kate Bush, The Cramps. And that impact on culture, Sofia Carson's music career took off because of Purple Hearts. Jenna Ortega picked up 10 million social media followers in the first week Wednesday launched on Netflix. And all of these folks who built these gigantic careers on Netflix then go on to have to own their own companies, sell their own makeup in many cases, and become incredibly powerful influencers. – 00:36:45 Ted Sarandos, Co-CEO & CCO

-> Reinvesting > FCF: So as we wrote in the letter, no change at all to our capital structure policy or allocation guidance, which is to, first and foremost, reinvest in the core business and selective acquisitions after that. Those are the main priorities. Beyond that, if we have cash in excess of our minimum cash levels, which is roughly equates to 2 months of revenue, then we'll return that to shareholders or share program. – 00:41:28 Spencer Wang, VP of Finance, Corp. Dev. & IR

-> Reed’s last earnings call: Thanks, you guys. It's certainly not goodbye. I'm heavily invested in Netflix' success. So there's been 83 earnings calls now, and I honestly have loved them. I love the interaction. But it's time for Greg and Ted and the team to lead, and I'll be in the prep sessions, but this will be my last earnings call on screen. Overall, I would say our first 25 years were good, and I'm super excited about Netflix's next 25 years being great under our broadened leadership team. Pleasing our shareholders and members is so satisfying, and I just want to thank all of you for your support and look forward to continued more progress. Thank you, everyone. – 00:46:19 Reed Hastings, Co-Founder, Chairman, President & Co-CEO

Q4 2022 Y/Y Δ
Revenue -26%
Net income -66%
*margin 2.8%
EPS -69%
ROE 4.4% (15.6)
ROTE 4.8% (16.4)

-> Worse-than-expected backdrop: We have and continue to be incredibly focused on managing our financial resources, especially in light of the worse-than-expected backdrop in the fourth quarter. Specifically, we reduced the size of our balance sheet, further optimized and reduced our RWA footprint and manage down our G-SIB score to hit our 3% target. We have also started firm-wide expense reduction efforts to offset inflationary pressures and rightsize the firm for the current environment. We made the difficult decision to conduct a 6% headcount reduction exercise earlier this month. As we said, we had paused our regular performance management-related reductions during the pandemic and also had a period of strong growth in headcount given the opportunity set in 2021. We feel deeply for the individuals that were impacted by these reductions. They are extremely dedicated and talented individuals, and we wish them the best. – 00:02:41 David Solomon, Chairman & CEO

-> Signs of widespread distress: I want to spend a moment on the broader operating environment. The backdrop over the last year has been incredibly dynamic. There were headwinds we expected, like high inflation, but some we never thought we'd see, like the ongoing land war in Ukraine. There aren't many signs of widespread distress. Balance sheets and company fundamentals are relatively healthy, but it's clear that the outlook for 2023 remains uncertain. In the U.S., Central Bank rate increases have started to have an impact on inflation, but they are also lowering the growth trajectory of the economy. And the labor market remains remarkably tight, with an estimated 1.7 job openings available for every unemployed American. Our clients are thinking a lot about how to navigate this complex backdrop. CEOs and Boards tell me they are cautious, particularly for the near term. They're rethinking business opportunities and would like to see more stability before committing to longer-term plans. Many firms have started preparing for tougher times, focusing on factors within their control. – 00:03:59 David Solomon, Chairman & CEO

-> Strong results in some areas and buybacks: We generated double-digit returns in a year where rapid monetary tightening and ongoing macro uncertainty drove significant market disruption, with both equity and fixed income markets falling for the first time in over 50 years. We grew management and other fees by 13% year-over-year and grew net interest income by 19%. We reduced our on-balance sheet alternative investments by $9 billion. We also returned $6.7 billion of capital in the form of dividends and share repurchases, and we grew our book value by 7%. [...] As we go forward, we are executing on 3 key priorities we've laid out for the businesses: number one, growing management fees in our Asset & Wealth Management business; number two, maximizing wallet share and growing financing activities in our Global Banking & Markets business; number three, scaling platform solutions to deliver profitability. We have a proven track record of navigating a wide range of operating environments, and we will continue to execute our long-term client-oriented strategy regardless of where we are in the cycle. – 00:05:13 David Solomon, Chairman & CEO

-> Expects better results from Asset Management: One thing I just want to make sure people are focused on is we have to do better in Asset Management. This certainly has been a part of our strategy over the last 3 years is to reduce our balance sheet in Asset Management. And we've made real progress on that over the last 3 years, but we still have a very significant Asset Management balance sheet, larger than we'd like to have. We reduced it by $9 billion this past year, and we intend to move forward. But given the disruption in asset prices and the density of that balance sheet, it's not surprising when you have $32 billion of capital allocated to that segment. And if you look at the fourth quarter, it earned 0, even with some businesses in there that are highly profitable. I don't think that's normal. I don't think our expectation is that it continues the same way. – 00:19:26 David Solomon, Chairman & CEO

-> Forward-looking strategy: We continue to grow our management fees in the Asset Management business. We're continuing to grow our wealth business. Our wealth business overall grew nicely during the course of 2022. And so it's that mix change, less balance sheet intensity, growth in Asset & Wealth Management, continued financing growth in our core Global Banking & Markets business, which you've seen and continue to grow, and then getting these platforms that we have to operate profitably, which we believe we can do. We believe they're good businesses at scale, but they're in a different stage of their development. Those things should make the business more resilient, and that's not inconsistent with the strategy we laid out 3 years ago. – 00:21:18 David Solomon, Chairman & CEO

-> Headcount reduction and cost savings: So we exercised a headcount reduction earlier this year. Approximately 3,200 employees left the firm. The run rate expense associated with that group was approximately $475 million, and we expect the benefit in 2023 north of $200 million associated with that. Beyond that, we have a series of non compensation expense initiatives. We're setting out guardrails for our business leaders to drive more efficient levels of noncompensation spend. The narrowing of the focus in consumer is important. There are a number of ways in which we could have chosen to expand the offering and capabilities of that, but the focus is now narrow. And then finally, as you identify, we have more flexibility with respect to capital deployment, which we intend to take advantage of. – 00:35:39 Denis Coleman, Chief Financial Officer

-> Transaction banking progress: We're very pleased with the progress of the transaction banking business, and it's a business that has particular benefits as we scale activities on it. We have our tech platform up and running. We continue to grow our clients on the platform. They unanimously continue to give us the feedback that it is a very differentiated and attractive platform to be part of. And we have taken that business, as you say, from its inception to larger scale. We think there's a lot of potential for that business on the forward. And we're very focused, at this point in time, in continuing to drive deposit balances, continue to drive our customer count, further penetrate. As you mentioned, our international expansion continues. We've opened in our fifth country. We now have increasing capabilities to serve clients across the world. There are true benefits to the network effect of a business like this with global reach, and we continue to see very, very good opportunities for this business. – 00:42:14 Denis Coleman, Chief Financial Officer

-> Salomon urging investors to zoom out: The takeaway I'd like investors to understand is when we see things, we look at things and we pivot. We're not married to things. We're willing to change. When I go back to our 2020 Investor Day, and I look at what we laid out during that period of time, we've accomplished and have executed on the vast majority of things we've laid out. That doesn't mean there's not more work to do. But you know what? We didn't execute perfectly on some. So we've taken a hard look at those and you make adjustments. And that's kind of the ethos of the nimbleness of Goldman Sachs that I want to amplify. We're always willing to make changes. We're always going to be focused on shareholders. And even though everything has not gone perfectly, again, I'd point to our 40% book value growth since our Investor Day, and I'd map that out. Our book value per share growth, I believe it's more than double the next nearest competitor. – 00:55:34 David Solomon, Chairman & CEO

-> The psychological impact on M&A and financing: The second half of 2020 and 2021 were not normal. They were way inflated by the massive fiscal stimulus that created kind of, I'd call, on the spectrum of activity, excess activity, pulled a lot of activity forward. And then because of market disruption, we've tightened monetary conditions meaningfully in 2022. It's the first year in over 50 years that both fixed income and equity markets were down. We had the S&P down 20%, the NASDAQ down 30%. You had a real change in asset values across the spectrum. And when that happens, it takes a period of time for people to adjust. My historical experience would be that period of time is kind of 4 to 6 quarters. If you think about it, if somebody had a stock that was trading at $100 and the stock goes down by 30%, certainly, for the next couple of quarters, they're still thinking about $100. But if it's at $70 for 4 or 5, 6 quarters, then it's $70. And suddenly, when you look ahead and you think about either an M&A transaction or financing, you have more realism about the reset of values. So I think we're well into that journey of a reset in expectations. I think it might have another quarter or 2 to further reset, but I think we're starting to see some additional improvements. – 00:57:09 David Solomon, Chairman & CEO

Q4 2022 Y/Y Δ
Revenue -12%
Net income -40%
*margin 18%
EPS -37%
ROE 9.2% (14.7)
ROTE 12.6% (19.8)

-> Demonstrates resilience: The macro backdrop of the last year presented challenges we haven't seen for some time. The combined impact of persistent inflation and rapid central bank tightening pressured asset levels and led to some -- led to very little strategic activity and capital raising. Despite volatility throughout the year, Morgan Stanley demonstrated resilience and delivered on an ROTCE of 16%, including integration-related expenses from our deals. The firm did what it was supposed to do with our more stable Wealth and Investment Management businesses offsetting declines in Institutional Securities. This is hard evidence of the transformation we've made to become increasingly durable and a stark contrast to the 8% ROTCE we had in the last notable challenging environment of 2015. When markets rebound, we will capitalize on growth once again across the full firm, and from an even stronger position. – 00:01:27 James Gorman, Chairman & CEO

-> Strong results in some areas despite significant headwinds: As we continue to grow our client assets, we expect Wealth and Investment Management will become an increasingly larger portion of the firm's pretax profit. The stability of the firm will be further enhanced by this growth, all the while coupled with a preeminent institutional franchise. Fair to say, our business model was tested this year, as you can see on Slide 7. 2022 was a paradigm shift. Firstly, continuation of the first pandemic in 100 years, the first war in Europe in over 70 years and the highest inflation in 40 years. Despite lower asset values and an anemic underwriting calendar, the firm performed well. We generated, as I said before, a 16% ROTCE; had the most excess risk-based capital of our peers; and attracted over $300 billion of net new assets; all while integrating 2 major acquisitions. So now moving to the opportunities to maximize growth in the next decade, let's start with Wealth Management. On Slide 8, you can see we have leadership positions across channels, reflecting our combination of best-in-class advice and best-in-class technology. – 00:04:28 James Gorman, Chairman & CEO

-> Current cautiousness will change: And I am highly confident that when the Fed pauses, deal activity and underwriting activity will go up. I would bet the year on that, in fact. CEO's job is to drive growth in their businesses, and they do that two ways, organic and inorganic. And I've been doing this a long time, and I've done both. And the only tricky part about inorganic, once you've got your strategy set, is timing. And sometimes, you've got to ignore timing. But if the market is really volatile, it behooves CEOs, particularly those relatively early in their careers, to be a little cautious, and that's what we're seeing. That will change. – 00:41:40 James Gorman, Chairman & CEO

-> Morgan Stanley is, no doubt, the most optimistic among the banks: I mean, we're growing parts of this firm. We're not of the view that we're heading into a dark period. Whatever negativity in the world is out there, that's not our house view. So we want to make sure we're positioned for growth. This thing will turn, M&A underwriting will come back, I'm positive of it. So we want to be well positioned for it. – 00:51:37 James Gorman, Chairman & CEO

-> Assuming no rate hikes during 2023: I'm actually, as I said earlier, alluded to, I'm a little more confident about the long -- medium-term outlook for the market. I'm not talking about the first quarter or 2, although Sharon said the first quarter has actually started well. But the medium-term outlook for the markets, I see the Fed has moved from 75 to 50, likely to go to 25. The next stop on the trend line is 0, and then to mention when they will start cutting. Not sure they're going to cut this year, but I think they will be 0 increases this year for sure. So that's the inflection point. And there's a lot of money sitting around waiting to be put to work. And that's our job, is to be the flow of capital between those who have it and those who need it. So I'm pretty confident actually about the outlook. – 00:57:37 James Gorman, Chairman & CEO

✍️ CEO Satya Nadella’s letter to employees
Wednesday, January 18.

Customers do more with less
We're living through times of significant change, and as I meet with customers and partners, a few things are clear. First, as we saw customers accelerate their digital spend during the pandemic, we're now seeing them optimize their digital spend to do more with less. We're also seeing organizations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one. At the same time, the next major wave of computing is being born with advances in AI, as we're turning the world's most advanced models into a new computing platform. This is the context in which we as a company must strive to deliver results on an ongoing basis, while investing in our long-term opportunity. I'm confident that Microsoft will emerge from this stronger and more competitive, but it requires us to take actions grounded in three priorities.

Layoffs and focusing resources
First, we will align our cost structure with our revenue and where we see customer demand. Today, we are making changes that will result in the reduction of our overall workforce by 10,000 jobs through the end of FY23 Q3. This represents less than 5 percent of our total employee base, with some notifications happening today. It's important to note that while we are eliminating roles in some areas, we will continue to hire in key strategic areas. We know this is a challenging time for each person impacted. The senior leadership team and I are committed that as we go through this process, we will do so in the most thoughtful and transparent way possible. Second, we will continue to invest in strategic areas for our future, meaning we are allocating both our capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas. These are the kinds of hard choices we have made throughout our 47-year history to remain a consequential company in this industry that is unforgiving to anyone who doesn't adapt to platform shifts.

Creating higher density by eliminating office space
As such, we are taking a $1.2 billion charge in Q2 related to severance costs, changes to our hardware portfolio, and the cost of lease consolidation as we create higher density across our workspaces. And third, we will treat our people with dignity and respect, and act transparently. These decisions are difficult, but necessary. They are especially difficult because they impact people and people's lives – our colleagues and friends. We are committed to ensuring all those whose roles are eliminated have our full support during these transitions. U.S.-benefit-eligible employees will receive a variety of benefits, including above-market severance pay, continuing healthcare coverage for six months, continued vesting of stock awards for six months, career transition services, and 60 days' notice prior to termination, regardless of whether such notice is legally required. Benefits for employees outside the U.S. will align with the employment laws in each country.

"It's showtime”
When I think about this moment in time, the start of 2023, it's showtime – for our industry and for Microsoft. As a company, our success must be aligned to the world's success. That means every one of us and every team across the company must raise the bar and perform better than the competition to deliver meaningful innovation that customers, communities, and countries can truly benefit from. If we deliver on this, we will emerge stronger and thrive long into the future; it's as simple as that. I want to extend my deepest thanks and gratitude to everyone who has contributed to Microsoft up to this point and to all of you who will continue to contribute as we chart our path ahead. Thank you for the focus, dedication, and resilience you demonstrate for Microsoft and our customers and partners each day. 

Q4 2022 Y/Y Δ
Revenue +11%
Net income +19%
*margin 27% (25)
EPS +21%
RoA 10% (-8%)

-> Expects a shallow recession: Turning to our results for the fourth quarter. We generated $1.5 billion of net income or $3.47 per share. Growth in both net interest income and fee income contributed to a 4% increase in revenue. Our expenses were up 6% this quarter, primarily due to increased compensation from elevated business activity, particularly in our advisory businesses. Rob is going to provide more detail on our fourth quarter expenses as well as our outlook in a few minutes. Average loans grew 3% during the quarter, driven by growth in both commercial and consumer. For the full year, average loans were up 15%, and we continue to grow our loan book in a disciplined manner. As we look ahead, we are operating our company with the expectation for a shallow recession in 2023. Accordingly, this outlook drove an increase in our loan loss provision in the quarter and a modest build in reserves under the CECL methodology. – 00:00:38 William Demchak, Chairman, President & CEO

-> GDP and Fed assumptions: Nonperforming loans of $2 billion, decreased $83 million or 4% compared to September 30 and continue to represent less than 1% of total loans. Total delinquencies of $1.5 billion, declined $136 million or 8% linked quarter. Net charge-offs for loans and leases were $224 million, an increase of $105 million linked quarter, driven in part by one large commercial loan credit. Our annualized net charge-offs to average loans was 28 basis points in the fourth quarter. Provision for the fourth quarter was $408 million compared to $241 million in the third quarter. The increase reflected the impact of a weaker economic outlook as well as continued loan growth. During the fourth quarter, our allowance for credit losses increased $172 million, and our reserves now total $5.4 billion or 1.7% of total loans. In summary, PNC reported a strong fourth quarter and full year 2022. In regard to our view of the overall economy, we're now expecting a mild recession in 2023 resulting in a 1% decline in real GDP. Our rate path assumption includes a 25 basis point increase in Fed funds in both February and March. Following that, we expect the Fed to pause rate actions until December 2023, when we expect a 25 basis point cut. – 00:11:44 Robert Reilly, CFO

-> 2023 outlook: Looking ahead, our outlook for full year 2023 compared to 2022 results is as follows: we expect spot loan growth of 2% to 4%, which equates to average loan growth of 6% to 8%. Total revenue growth to be 6% to 8%. Inside of that, our expectation is for net interest income to be up in the range of 11% to 13% and noninterest income to be stable to up 1%. Expenses to be up between 2% and 4% and we expect our effective tax rate to be approximately 18%. Based on this guidance, we expect we'll generate solid positive operating leverage in 2023. Looking at first quarter of 2023 compared to fourth quarter of 2022, we expect spot loans to be stable, which equates to average loan growth of 1% to 2%. Net interest income to be down 1% to 2%, reflecting 2 fewer days in the quarter. Fee income to be down 3% to 5% due to seasonally lower first quarter client activity. Other noninterest income to be between $200 million and $250 million, excluding net securities and Visa activity. We expect total noninterest expense to be down 2% to 4%, and we expect first quarter net charge-offs to be approximately $200 million. And with that, Bill and I are ready to take your questions. – 00:13:26 Robert Reilly, CFO

-> Inflation and interest rates: As things roll off, we're reinvesting with high 4s, 5 handles on securities. Look, if the 10-year goes to 3%, if you look at the 5 year and 5 years, the implication of where long-term rates really have to head for that to be true, I just don't buy. I don't think we're going to be in an environment where the Fed is bouncing short-term funds around 1%, which I just don't think it's going to happen. I think we will get inflation under control, but I think it's going to be a struggle to get it under 3 long term. And I think front rates will rise and will stay higher. They might cut and likely will cut from some 5% level. But this assumption that they're going to cut and, therefore, rates are going to go back to 2 or 1, I just think, is absurd. So therefore, to me, the back end of that curve is uninvestable. You're right, it could rally to there. Good for the people who own it as long as it's not. – 00:47:12 William Demchak, Chairman, President & CEO