Paul Shoukry: I would say the additions this quarter were sort of a number of items of specific loans where we, as Paul said, try to get in front of it with additional reserves when possible. There are also a modest amount, I think, charge-offs are flat sequentially. So, nothing thematic, we feel good about the portfolio overall, but we try to get ahead of things, especially when the market environment is as unpredictable as it is, as Paul said.
Paul Reilly: For last quarter, the macro had a bigger impact than it did this quarter. It wasn’t a big macro outlook change this quarter. That’s right.
James Mitchell: Okay, great. Thank you very much.
Operator: Our next question comes from Devin Ryan with JMP Securities. Your line is open.
Devin Ryan: Okay, great. Thanks, Paul and Paul. And most have been covered here, but I do want to just touch on the fixed-income businesses briefly. So, the debt underwriting obviously had its best quarter in some time, it can be a little bit of seasonality there, but did have a better result than some peers. So, just curious whether that’s some idiosyncratic deals or if you’re actually seeing conditions for that business maybe starting to improve a little bit from depressed levels. And then, I guess, conversely, the fixed-income brokerage business took a little bit of a step lower from already a pretty tough level. So, just whether you see any catalysts on the horizon that could drive better results there as well.
Paul Shoukry: I think the fixed-income debt, certainly the activity was up. We did have a pretty big deal in the quarter also. So, that was part of the pickup and it’s long-term client we’re in rotation. We happen to have a big — our term for kind of the big underwriting. So, it’s a little bit of both, I would say, but certainly the big deal had an impact. And I just — the lack of interest rate kind of, as Paul talked about with the depositories, without excess cash, they’re waiting for stabilizing too. So, that part of our franchise has certainly been slow. And I think in general, the trading has been, as you look at spreads, whether in AAA munis or mortgage securities or stuff that have very high spreads. Right now, people are just waiting for rates to pick out because certainly the spreads there are higher than they’ve been in a while, but the activity is not way up.
So, I think people are waiting to feel like they know where interest rates are going to stabilize. And until then, it’s going to be a tough business, maybe a little better. It’s hard for it to get a lot lower, not impossible, but when it really picks up is I think you’re going to have to see more of a stabilized outlook and interest rates.
Devin Ryan: Got it. Okay.
Paul Shoukry: I mean, the big ad has been, SumRidge has done extremely well since joining us, too. So, they’ve been a great addition and well ahead of what we would expect in the traditional business, but at lows given the interest rate environment.
Devin Ryan: Yes, got it. Okay. Good color there. And then, just follow-up briefly just on kind of corporate M&A, I hear all the comments around growth opportunities with capital and obviously opportunistic buybacks, but just more broadly, how you would just characterize the flow of deals you’re seeing across the firm right now? And then just where the appetite is at the moment, just given the higher cost of capital how much of that calculation and maybe appetite for M&A has changed because you guys clearly have been acquisitive over the last several years here.
Paul Shoukry: I think that first, cost of capital is impacting deals. So, it’s two things. First, it’s pricing. So, with the buyers, the cost of capital is saying, well, this is significantly higher, and pricing has been slower to come down, which isn’t unusual in other M&A cycles that I’ve lived through. The price is slowest to adjust, and so that we have empathy for M&A bankers because we look at things too. We have the same thing when you look at debt was free and then you layer on a seven or eight or whatever the cost of rate is, and especially for a lot of M&A firms where it’s more higher risk debt. I mean, it impacts the pricing. It just has to. So, we see that both in the M&A business, it’s backed up. So, you can see people doing deals now in the fourth quarter.
We don’t expect the next quarter to be a lot different, but backlog’s good. People are waiting, but that gap, which I think a lot of it’s from lending pricing and the cost of capital is impacting it and you can see it in all the firms. And I’d say the same thing when we run numbers, it has an impact. Even with our excess capital, we assume we have to replace it, it makes it tougher. And most of the prices, most prices adjust a little bit or cost of capital falls. It’s going to be harder. Or people just wait it out long enough and go, okay, the lower price is the new price. It’s going to take one of those factors for it to really pick up. So, that’s why we gave more of a six to 12 month outlook in our M&A business. Just, we think that the market’s starting to see that, but let’s see if it adjusts or not.
I don’t think it’s going to happen overnight.
Devin Ryan: Okay. That’s great. I’ll leave it there. Thanks guys.
Paul Shoukry: All right. Thanks, Devin.
Operator: Our final question comes from Michael Cyprys with Morgan Stanley. Your line is open.
Michael Cyprys: Hey, good evening. Thanks for squeezing me in here. Just a question on the bank capital rules, we’ve seen some proposals from the banking regulators, including the Basel III Endgame proposal. Just curious how you see that impacting the opportunity set for your capital markets business, given you’re under the 100 billion asset threshold. Just curious how you think about the opportunity set for yourselves, but then as you look out over the coming years, I’m sure eventually you probably hope you cross a hundred billion and grow to that level. Just how do you think about that impacting potentially your capital markets business? Which areas you think might be more impacted and how do you think about preparing for that?
Paul Reilly: Well, a couple of things. First at our $78 billion and 1% growth, it’s going to take a lot of time to hit a hundred. And I think people forget that one of the big jumps in our assets is because of the TriState acquisition. We have no plans to acquire another bank. In fact, it took us five years of looking to acquire TriState, which was the perfect fit to joining the family. But we’re not looking for another banking franchise. Almost anything else we do doesn’t significantly drive our asset size. So, we think we’ve got a certainly I’d say 5 year, you have to cross and then you get a year to comply. So, and it could be much longer. So, I — most of all the rules as you cited, there was a 100 billion. And so, I think we have time to do that.
Now, having said that, we’re already internally doing studies on the impact of reporting requirements, the capital requirements, the technology everything that’s going to be impacted and the regulatory expectations, which do change, when you cross a 100 billion, so we have both inside and outside how we’ve been hiring some people, and this is kind of 5 years in advance. So, we’re not — we’re not taking it for granted. We know we’ll grow, but as you said, almost a 100 billion became the old 500 billion before they changed the rule and then 250 billion. So, it has brought a lot of those rules down for significantly higher heavy — higher lift. But I think right now that’s in the future for us, so always.
