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PNC Financial Services (PNC)

Participants
Bryan Gill Director of Investor Relations
William Demchak Chairman, President and Chief Executive Officer
Robert Reilly Chief Financial Officer
John Pancari Evercore ISI Research
John McDonald Bernstein
Erika Najarian Bank of America Merrill Lynch
Ken Usdin Jefferies
Betsy Graseck Morgan Stanley
Kevin Barker Piper Jaffray
Gerard Cassidy RBC
Brian Klock Keefe, Bruyette & Woods
Mike Mayo Wells Fargo Securities
Call transcript
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Operator

Good morning. My name is Kelly and I will be your conference operator today. At this time I would like to welcome everyone to the PNC Financial Services Group Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions]. [Operator

go this over recorded. Investor to Bryan Sir, reminder, turn will Relations, is Gill. call the the please call a I being now Mr. As ahead. Director of

Bryan Gill

Financial morning, forward-looking Rob Well, thank for PNC President Reilly, and are Executive Services Financial CEO, Welcome information. call Chief today’s Participating this Chairman, conference Vice the on everyone. Officer. Group. PNC’s you contains call to Bill Today’s good presentation and President Demchak; and and

performance measures conference assume trends available could PNC presentation Actual Relations. Information of April and is variety in continuation filings speak performance reconciliations of take Our account anticipated economic regarding other forward-looking future and of differ, risks contingencies. a the current from corporate historical non-GAAP statements those due as discuss and various in and other into all materials. included and to and related under pnc.com, website, of and events our we These only such release, SEC statements PNC investor materially, today’s update results XX, about factors. factors, and regulatory not financial our These in a do possibly GAAP undertakes from materials, well potential obligation XX-K, statements no to as earnings and are on the impact information on XXXX, our legal other Investor them. and call, as and

Now, I'd like to over Demchak. the turn Bill call to

William Demchak

morning Thanks, Bryan, and everybody. good

Compared same a delivered interest and we or benefited fee per of income billion we we by seen $X.XX the higher a reported first federal now period share. net common and you've lower for tax income ago, from net income, quarter rate. As the also year diluted $X.X to

I the were addition, we by On of it a good we continued headwinds for that employees a But sequential their whole, mentioning. in And there are a expected. like impacted seasonality, hard quarter. as work. was thank worth would to basis, our pretty On were couple

expected, loan Within estate although average declined our we billion. pretty grew tend weaker business, loans these than in warehouse the real as spot First, multifamily fluctuate agency broadly. to lending by growth $X.X was quarter first balances modestly C&IB's

pricing in aggressive and have a steady in volumes. real balanced take going are And Outside CRE, lower portfolios from commercial Rob’s at makes course, the trends and those largely growth of the which estate payouts continue underlying you more to that, challenging. space in our in become structure a positive, and moment. the more detail resulting Aside through at of same time, more maturities rate in new loan

Secondly, funds Fed and we're rates yields continued higher. we the benefited the sharp to hand, move expected. our LIBOR this our execute new the opportunities strategic LIBOR in and of caused tap loan as excited continue cost as relative additionally, to we we about borrowed higher result to quarter well to rose pricing cost as year priorities And due of to funding to That our quarter. unfolds. than three-month this But the movement funds our increase more said, rise against higher deposit a other one-month from Clearly, increase LIBOR. us impacted and on in betas in the plans one-month

Dallas, aware Houston and expand Kansas to taken Nashville all XXXX, this middle-market Denver, and two we've our You’re the years in of last the and Minneapolis over steps year. City to franchise

those teams have the is new well those that going ground have running. and presidents hit markets hit in our – there very regional Now work as our

help our the to customers we beginning forward in In addition, are us. which ease innovate with rollout and us more of an consumer traditional will to we've business digital retail looking the Banking national to our beginning serving year, leverage customers we're awareness and brand strategy our in take of Retail capabilities built beyond begin and new do advantage our and And to customers platform industry-leading later footprint. which enhance more the technology these

of actually had the results, as season, recall take for questions. do in to look and strategic we're when your our Rob? to quarter as organic over we'll we've and can't our right With time I that, middle a planning many then opportunities closer it investment at now. turn a I'm fact, first going In we attractive Rob

Robert Reilly

Yes. Thanks, everyone. good and Bill, morning

or managed. net Capital results quarter And income expanded. per our interest As mentioned, Expenses benefited share. lower were Bill remained course, just from billion a rate. tax of well common diluted $X.XX was our margin first $X.X return Net strong.

Our balance sheet linked-quarter. loans on is were Total basis. average an on flat presented Slide four and is essentially

billion few year-end. our I'll ago, since by exceeded portfolio a a $X.X to of loans year in X% spot of billion grew grew quarter $XXX up made same or were average the moments. Investment both billion loans and RMBS. and as linked-quarter, Compared purchases agency growth U.S. Purchases discuss drivers spot this by runoff. $X.X $XX.X increased or and million the X%, treasuries securities However, primarily of approximately

of market equity standard an to securities In accounting million fund due $XXX adoption. mutual money investments addition, to were reclassified

reclassification, this to securities billion about Excluding fourth investment compared increased the $X quarter.

first quarter, year-over-year. at $X.X linked-quarter flat up $XX.X balances Federal for the Reserve essentially Our billion were and billion the

activity deposits compared deposits reflecting increased Year-over-year, seasonal side. total side, primarily $XXX common linked-quarter. to $X.X the liability or approximately increased declined million equity commercial by the approximately shareholders $XXX Average million X%. by fourth on by quarter the On billion

million of capital for quarter, of of and the common to returned of income million. XX% billion quarter During shareholders or first net $X.X $XXX shares repurchases through dividends million we $XXX X.X

to our impact accumulated on This X.X%, decline points to December estimated equity March Tier higher compared was securities. common Basel XXXX, result is XX, as of interest down III a be of available to ratio for due income XXXX. basis other the a XX of X comprehensive rates XX, primarily sale As in

return Our the on first assets X.XX%. quarter average for was

XX, XX.XX%. on a slightly basis, was year ago. was but a to compared tangible AOCI, common as common our book And which value of declined per average linked-quarter impact $XX.XX on of reflecting the equity date return X% same was Our March up the share

as Turning $XXX of linked-quarter. I essentially just to five, total average flat mentioned, loans billion were Slide

the to due mentioned, decline if to effect, will, lending Bill billion warehouse fluctuate. tend largely a balances $X.X which, average in However, flattening was you agency

spot increased loans $X.X by $X.X Importantly, increased average billion linked-quarter X% spot or and year-over-year. both or loans X% and billion,

by was as our increases commercial up commercial quarter year-over-year lending estate which business commercial and the million linked-quarter mentioned, and offset fourth mortgage, in card $X.X and was in a year-over-year, I've balances. XX% by $XXX lower which year-over-year. segments, equipments equity as was X% all in driven was real which lending. were the X% linked-quarter Offsetting including and year linked-quarter education corporate slightly result billion broad-based finance credit, X% the this auto declines linked-quarter As or home other to period loan Commercial compared lending X% the quarter decline up year-over-year, ago. warehouse Consumer by and a well loans by million virtually activity decline and of up grew in same credit partially XX% lending $XXX was and X% which increased residential growth banking, loans,

rising down compared or year X%, ago, somewhat period $X.X commercial slide to deposits increased to same interest-bearing seasonal the deposit to by commercial growth billion, X% deposits increased the a or in of outflows, $XXX primarily the consumer bearing the offset deposits by total due expected, a higher as reflecting result shift compared Turning to million deposits. both six, while Total declined our consumer billion were which fourth quarter, reflected non-interest deposits, and deposits mix as rate a $X.X same approximately year-over-year, during period in environment.

In to move addition, deposit in continue the first betas upward quarter.

levels already was and our XX%, do accumulative lagged, deposits second simple beta betas to XX%. accelerate December our quarter year. the current beta, them commercial the beta throughout the while is and XXXX have compared is balance expect our Our XXXX, December terms, we of beta stated XX% total our the consumer cumulative In our expectation in which was stated to and approaching interest-bearing long-term since of on since

linked-quarter. fourth funding slide quarter. non-interest income Compared income lower $XXX of X%, higher the impact to quarter, significant the quarter million remained overall $XX seven, reflecting XX% quarter, in the our Non-interest yields Program. part higher impact Continuous in net or $XX stable. million million, As our losses first I've and Net was impact as significant of million first managed and in by credit can X% quarter fourth the on see were the interest declined be continue seasonally Provision items quality quarter. increased items for compared credit Improvement partially reflecting in to you to $XXX also $X.X a was or by These decrease of quarter already Expenses mentioned, linked-quarter billion. the offset due million income $XX the loan the last days two decreased to or well of fewer fee and costs on results. fourth expense income

tax effective rate the XX%, legislation. quarter federal of impact the was in Our reflecting first tax

rate For the tax approximately full effective continue XX%. to to expect be we the year XXXX,

performance Now detail. more let's drivers the key discuss this in of

by offset borrowing slide impact deposit to income linked-quarter the fewer approximately The days increased higher count were Turning was by interest as eight, million million. net $XX loan costs $XX in well and partially as deals quarter. higher two as or day X%

balances. Compared well affected loan points interest to of by were tax as loan related As first margin quarter sharp one-month three and by ago, as due you'll fourth leverage three-month LIBOR by basis the three quarter was fourth million quarter driven partially LIBOR LIBOR leases. X%, in interest impact legislation the offset income as $XXX during increase yields an widening the result to quarter. by or the increased higher costs higher funding higher of and securities increase same the month was recall, between and income compared negatively to to a X.XX%, loan of year spread as net a net yields interest $XX the million Net higher

our loans are While a to one-month are three-month portion all of to of large essentially borrowed LIBOR. funds LIBOR, tied our tied

income, million asset growth non-interest income. $XXX by increased well reflecting items Slide income, to income non-interest provides fourth other quarter. detail non-interest at is XXXX. higher in assets offset a million our PNC's on fees, due the or the BlackRock X%. largely from of categories, million non-interest a or includes investments X% Compared $XXX on significant lower as in in various were the equity impact under year, $XX asset by equity linked-quarter $XX fourth the income as lower down to XX%, legislation the year increased impact This quarter or X% partially markets in earnings was which which reflected same management. earnings X% benefits on quarter more Compared and looking to ago, million nine quarter linked-quarter BlackRock's increase flow-through quarter the fees a basis, management the of seasonally of First a same reflecting last and down management our trends fee tax

benefited X% increased debit or to seasonally treasury a M&A a year million consumer results down fees Additionally, or syndication reflecting or card lease fees. fees and fees. $XX to were corporate client Corporate our driven to from card, fees lower by growth Consumer same results, brokerage a fourth fourth the fees services lower seasonally year fees lower services service quarter management to BlackRock tax and X%, X% income. million rate. advisory earnings X%, the in fees Compared operating same credit strong quarter quarter higher quarter Compared or $X compared increased decreased loan $XX and by $XX activity. and ago, million from compared million ago, services reflecting included

on seasonally fourth the declined year-over-year As growth. which driven mortgage non-interest been than corporate quarter, on updated client X% related rather have a negative fees decreased reclassified. income now primarily MSR XX-K, in linked-quarter and by by million other activity. increased $XX periods by sales our adjustment basis mortgage deposits million reflecting operating compared charges Residential income lower to in income value volumes. assumptions income the reported is we in revenue reflected increased disclosed year-over-year customer million lower basis, X% reflecting driven charges on fourth $XX services previously fair Residential lease $XX prior a service or $X loan to deposits refinancing however, On Service or lower a million quarter.

of income net $XXX non-interest million $XX to negative impact the other quarter, items. which a compared Finally, increased million included significant fourth

related XXXX the to due these Excluding primarily gains other for the linked-quarter, reflecting including a adjustments commercial to valuation income year million declined held $XX to non-interest investments, on loans the $XX lower Compared quarter net lower from items, million, revenue other non-interest Volcker of first mortgage declined benefit from period impact income equity a sale. same ago, Rule.

range operating services for and million, the considering million run we non-interest in the the quarterly income activity. excluding expect to and $XXX corporate now forward lease be reclassification income securities net other rate Going visa of $XXX into fees, to of

XX, slide cash consisted by impact the of of XX% to $XXX payments quarter. These PNC items Turning significant decreased of first approximately the real charges reflecting $XXX or and a and credit. Foundation, fourth quarter employee in estate to disposition account contribution and million million pension expenses extra the

will our to Excluding results Continuous items, these based quarter or of declined Improvement lower achieve previously our the first million of by track expenses cost as target. on million reflecting Program, continued management. we reduce are XXXX $XXX announced $XX focus and and first we seasonally cost impact full-year expenses our the goal on X%, quarter in on We've part confident and

quality the continue of credit down the nonperforming elevated $XX reflected releases. were million than home The XX reflects the for decreased recently in from results. charge-offs less charge-offs. quarter, Total points, levels loans. consumer by or shared higher examination. down account one represent $XXX to linked-quarter linked-quarter remained provision performance net in quarter partially into primarily posted residual $XX was quarter. historical lower by decline impact first million loans, $XXX quarter total loans basis the were quarter, by credit XX, commercial loans. our lower provision million Total was consumer loans, the XXXX national These overall favorable at provision commercial the compared to offset hurricanes. of for results $XX first Turning point to a $XX due annualized the impact higher the million million prior charge-off quarter stable X% million completed strong in Provision In X% of year-end and to delinquencies Net of decreased first first seasonality to losses outcome while the and down the of reflecting basis slide summary, In for net provision fourth driven take linked-quarter. credit PNC on reserve the commercial equity that ratio

us more a we and the continued year, rates June results deliver being XXXX. increase points. year adjusted Based For our and the growth unchanged XXXX XX remainder these GDP operating year, guidance in two times increase on short-term with positive interest XXXX remains full assumptions, full-year December, in basis steady positions corresponding in compared expect to of this and to each leverage in

Looking results, first to to quarter of the ahead modest second compared XXXX growth. expect we the quarter of reported loan XXXX

interest income We be up net single expect low total to digits.

income fee digits. be expect We up mid-single to

We expect range. $XXX million in other $XXX non-interest million income to to the be

between to to expect to digits. single I million. We $XXX provision $XXX And be million with questions. we your expenses Bill ready that, are And up low be take expect and and

Operator

Instructions] Evercore [Operator first Our from the from question of John comes line Pancari Research. ISI

may You with your question. proceed

John Pancari

morning. Good

William Demchak

John. Hi,

John Pancari

that? more three-month had on you Is plan funds, that if had LIBOR, I And how the increase is if talk your borrowed Can it? assume into address what about the that, your side more visibility the to in you bit and forward? on you are I plans I offset that good could majority talk expectations, since the you expected. are focusing talk pretty see How just mean, just its also, know a than that you to little there? help Or you exceeded that tied you how you deposit wanted was so, to remix Just exceeded? could to increase more cost would've Thanks. there about a indicated going then about the do

William Demchak

that in it's wider what March historically guess been have that. it's LIBOR three-month I It’s points of a XX, basis gapped good one-month run. is particularly it between the half spread XX and than out and today, Basically a happened question. historically, might

wait history it's of forecast is writing been is financial that in. people time So The all else of have any the and We'll issue are to in And see. than other you'd see lot that wouldn't that, equal a today, that our assume collapse will as we back as gap. in wide basis crisis. -- NII, it

that in coupled this money I pressures implications as the of with some big function provision of that some new federal the from think there the industry is code. tax market a revamp tax causing

going that so in are see. change, one-month to to have and price just will that swapping what to closer. between wait and get it have But into probably -- and funding embedded we to we'll mismatch we the do our swap, loans we'll we see to see, happens. -- doesn't wait funding this and So be can basis start If wholesale can our banknotes anyway, our

John Pancari

Thanks. right. Okay, all

Robert Reilly

John, can jump Hey, I in there.

increase of as Bill rising. million that rates The to the in And about was is or some that fundamental LIBOR gap. to million issue the So, points we $XX is XX the $XX and in about equate just mentioned, three-month basis gap, cost quarter.

John Pancari

it. Got

my right. then, average not somewhat outlook change were loan you know your flattish loan The year All did around this balances growth. And growth. is Okay. I full follow-up around quarter.

the growth see did You in good of period. end

So signs the industry for likely that's you separately, are for indicative loan the your backdrop? then tax weak about of still reform. your trends And seen first improvement, I the mean, you're sector, given growth, assuming of point particularly not we've sure talk year expectations broader full end macro I'm period but to can outlook. given of the all, macro more changing

talk So little if about that bit? you just a could

William Demchak

Yes.

everybody tax March that don't saw enacted. see pipeline, decent did prior anomaly the I think in you Jan, was I that own a pickup our kind performance NHA busywork what than in so our Feb the getting and what seeing all in in know data of where you mirrors the to other we're

was Jan, should and the March set would one rest that, equal, for well is the kind exception of the estate, place kind it's were norm I us versus were our get the we've year. beyond mentioned be a slower. certain The to else real I say that Feb where up anomalies of and and to that our structure all where So of this, historical in seen sector in to that tolerance most and growth pricing just risk

John Pancari

Okay, great. Thanks Bill.

Operator

with comes question from John next Our McDonald Bernstein.

proceed question. may your with You

John McDonald

good Hi, morning.

a the guys the helpful. changing, disclosures page deposit pacing. on betas gave were really six of sense get trying we're terms you The to In retail of

since where look might up XX% So cumulative X% if sense this started rates of any that it's broad Rob, from where deposit in the this and of get at stood beta to this have the rising. thoughts the kind couple you current last we while there? could of quarter, quarter to something Or Any get is quarters? stated take beta a could a there?

Robert Reilly

Yes.

be of Relative betas the second in of that's that. So, lot quarter, that's true. it quarter, because to And so on We're have seen, built we do that. NII side guidance. accelerate into an on top they the terms How consumer a then but going much eye the to good our particularly best accelerated, on they've lagged. estimates question expect our where remains keeping of competitive pressures, last are to into

John McDonald

– – mix are? you competition put loan and And growth the when nationally? remind you're I then there? you're locally, factors plans And looking you everything what decisions, factor gets what us can make in just your at what And these looking when at guess,

William Demchak

the of All above.

Robert Reilly

Absolutely.

John McDonald

savings mix, consumer the shift folks Just move – deposit but PNC? thing, the versus you're within color checking and Just the more to any you're seeing time last more within on seeing? from deposit color on commercial mix

William Demchak

Yes.

back. actually to the shift We seasonal commercial would of It's deposits. running down. on commercial quarter effect this is a come sort more of them expect Now of

consumer quite it's know, LCR, important what in particularly don't side. so what versus as – you do we with they help to As the us not as

John McDonald

that there? consumer in terms side, the any on you're more seeing color behavior of And the

William Demchak

year, terms more with continues. been pursuing trend Pretty and what of the part consistent, seeing we've so the John, in deposits last been the the better savings that relationship-driven of for we've which of

John McDonald

of asking. faster gotten like that I the pricing? deposit I Is guess also accelerated that just kind this was quarter? Is

William Demchak

little Yeah, a bit. little bit. Yeah, a

John McDonald

Thanks. Okay.

William Demchak

Sure.

Operator

Najarian Erika from from Lynch. of comes question Bank Merrill next America Our

You question. with your may proceed

Erika Najarian

Yes. Thank you. Good morning.

William Demchak

Erika. morning, Good

Erika Najarian

for CETX, on My Fed capital the Yes. specifically, is question stress the proposal for buffer. first

it be. how that given, change how buffer from I'm reading in have the I usual think as your finalized in pretty you're as and if PNC as it of now the the And your for and minimums market would into the terms business positive buybacks banks now stress accounting feed capital stands, for that levels you're CCAR And wondering CETX did capital – like results you volatility set get how thinking about would floor of now here? largely course, a was also, your it? dividends where

Robert Reilly

is I shot some Rob. that? don't Why at a of This take Okay.

William Demchak

the I'm not part the of sure last I understood question.

Robert Reilly

scenario top quantitative obviously, XX%. dividends worth of helpful, and severe a capital the broad bit capital as that severe I'll got are – from to that broaden the elimination in the the still the of in couple of on measure Well, it just sort out of the right scenario, But we're growth CCAR, with are a of that of things encouraging. elimination of Fed's the the reviewing terms RWA of the Tuesday, proposal dividends, then so know, mean, which case it little year's in the at you I it. are terms of We The changes exception just sale. also the in a base the off action soft reduction

those stress to all we buffer and things, I capital So encouraging. The think, itself, have worked are review. well

be we call, define higher. because in the going stress scenarios, that theoretically the this a buffer, below that. see. any below X.X%, around, look in in been take which, XXXX we and year, capital submissions, is stresses but CCAR at past we'll It what the you around, go XXXX are scenarios, seen But issue has to remains given us the If to there there Fed could guardrails severe our around an were how be

Erika Najarian

account potential result? volatility volatility last would of there or results, given how But you does should To had question, it confusing. clarify that think be that – in about been, buffers investors to should question that that incorporate how for sorry the you to your

William Demchak

kind the question. dollar of That's Yeah. million

stress in our is. year-on-year. – We work severe opposed out severe state about as always that to we've on time need And you And heard capital much before. what about that what know did one to the us it's of as did us as out, work if versus the this how severe with. up have this in stress CETX look the buffer scenarios internally, a last stress endpoint as towards would your they I the year. don't volatility, plays us from driven goes perhaps to they we is a a the you've a benign we this year number change historically relatively target X.X%. more solve own things your they point of to approach a our through through year, then estimate to starting function you as we talk of of you like. X.XX% a capital issue Fed An next what by perhaps point severe repurchases have as on-the-fly, as of number, which stress That for historically So talked being that for But come causes

Erika Najarian

And more your for you buyback opportunity period levels? follow-up just with one at earned-back us current so have I'm attractive. thinking, investment been mentioned you organic what in activity your never that question, is could share valuation And

William Demchak

at But an sort at multiple tight. I fairly of mean, you I IRR that ways. look issues. that earn-back. those forward our potentially probably know two we internally. Sorry, look our earn-back an We is it at We today, basis, look we're earnings don't I tell price-to-book. other We period are we offset I've potential look actually think which at on that. what would talked we where about

Robert Reilly

look opportunities we a that. clearly But to that investment take your point, beat the at

William Demchak

Yes.

Erika Najarian

you. Thank

Operator

from Ken next Our Usdin with comes question Jefferies.

question. proceed may with your You

Ken Usdin

very want know and parts. of that to little I How you ask are a And the firm tax it and Thanks couple spend the IRR on and a personnel starting just X% things, guys. that I moving Hey, expenses, some of benefits? noticing question you of just bought you understand that to – you are couple other much. doing? are is help us recent can hires? costs Is just year-over-year, there's up

Robert Reilly

Yes.

Ken Usdin

personnel we it kind will to balance CIP, relates of versus as especially growth understand the how the Just Thanks. of cost?

Robert Reilly

Sure, Yeah. Ken.

the linked-quarter things of single-digits The which guidance. low in in of our expenses there's on part just first quarter, was a were there. couple So of year-over-year, terms expenses going down

prominently, First, subsequent expenses of to the acquired and quarter. the business. in XXXX, $XX the acquisitions Most the notably, you quarter of quarter first we out leasing the expenses reflect that equipment the company, XXXX spread first personnel that between happened pointed those which with second expenses expense, most nature and of million and the about equipment which and expenses of depreciation the headcount, are because because out personnel higher are leasing associated

that's one. So

some the on of wage increases made would as side, there, we've investments the addition, well year we hourly personnel in as the markets investments end our In we've the new that have some as increase retail made, the of expect. we for do around employees that is you announced at the

line. and which directed, program is a marketing little all So other occupancy personnel categories down, lot a year-over-year, but is are CIP in of is flat were is lot and our expenses, is a bit higher, of

feel high have and the So it. confidence why on said, we that's we Program, that to we out I do like Improvement about good set will we achieve what Continuous

Ken Usdin

Got Okay. lease then up the it. follow-up And corporate quick I – services. you commercial, the move on just into one that understand the operating

of with flow us would what us seasonality now expect the in you corporate from to second services you outlook you the quarter, drivers understand a can that? remind and can there, So that your perspective from for within fee just help

Robert Reilly

mid-single up categories, all Yeah, corporate for can the up easy out guidance, so, including that a the in sure. each and guidance you I each whole. service just digits, services, in mid-single terms corporate services, of not five categories, time the mid-single management, but digits first for the broaden in digits mortgages in for overall, for in the it's asset on charges fee all digits services. terms our of categories, deposits, consumer, of while, And of fairly corporate mid-single

Ken Usdin

for Okay. Got Rob. Thanks it. that,

Robert Reilly

Sure. Yeah.

Operator

comes question next Morgan from Our Betsy with Stanley. Graseck

question. your with proceed may You

William Demchak

there? you are Betsy,

Betsy Graseck

Hey, morning. Talking good Yeah. mute. Hey. on

Sorry about that.

William Demchak

problem. No

Betsy Graseck

just Question, continuous ramping just that if a XXXX? of the the I improvement going be to in is expense quarter? expect wanted we follow-up understand to you the discussion XQ, is any this something in on over just had. Or

Robert Reilly

It's both. This at is go. there's other quarter to some, as the some line. I all directed mentioned, first more in there's largely But expense the

Betsy Graseck

Okay.

primarily got understand to XXXX. rate trying a coming throughout make I'm as estate And run you where be the people? are so, I just expect And on would to improvements building opposed real sure that be would you've it from? focused

Robert Reilly

Yes, in terms of the Continues Improvement Program?

Betsy Graseck

Correct.

Robert Reilly

to would up, leverage. just say, would positive operating as objective again, I now our is back I say,

Our the up targeted the savings for single able has Program a Each guidance level to for all over area achieve regularly the implementation is Improvement Continuous year. bank. we of to to those. that are review is really be of that expenses be Part that the digits low

investing, So improvement are well, savings there so it's in as retail, for areas even where broad-based. we there's example, substantial continuous

Betsy Graseck

solid gain? clients good, their any then leverage actually be. And of borrowers you the loan you're little of you activity It just that levels growth deliver borrowing the feel going know what wanted the Okay. in generating separately, which more stronger bit mean, a a about interest I went you're due and bit. not the growth. see it's Do able the Or to to year-on-year, it's markets increased have? decelerating on than But their looks drill to share are more? only Or I of maybe categories in already level like I clearly does question a would are the little peers sign been new is, you've various LQA – where through C&I, increasing little there like increasing into? you is current seeing you the it's above but

William Demchak

hit seen, Well, saw I C&I levels we've March, actually. what you think record in

tight. in increasing We continue, expect loans wouldn't new we in But stock we we is to markets the I of there know of C&I kind the there. new is inside then And to market estate. real an been some I effect So peers. been going But of in, rates growth to that to do. we've with don't markets outpace exception, of effect and able sort of past. expect the increasingly of we've one and peers have harvesting see that through product through out the that, that differentiated what both mentioned, would are to continue

Betsy Graseck

And… Okay.

Robert Reilly

got still growth mid-single-digit loan the are we for But into year.

all that's it. of So part

Betsy Graseck

quarter, though you've a of pickup rate in run had little from bit there? a this what terms So of

William Demchak

Yes. a this It's big a all think said had through in grow managed mortgage to and you When actually the drawdown noise had interesting. We C&I. quarter, pretty decent as they spot. I warehousing still quarter in

Robert Reilly

up X%; finance I my up up like X%. comments, on even, business and and in I segments, mentioned corporate equipment, credit, Yes, said banking, X%; the

William Demchak

Yes.

Robert Reilly

Pretty strong.

Betsy Graseck

Yes, Q-on-Q.

Thank Okay. you.

Robert Reilly

Yes.

Operator

question next Barker Jaffray. Our from with Piper Kevin comes

You may proceed question. with your

Kevin Barker

this regards In a rollout of half follow-up to you. have loan impact retail Does the Thank expected big strategy on digital back the that of growth, in your and the year? a there. loan just the growth

William Demchak

have brick-and-mortar an retail think No. strategy costs and No. returns somewhat It's above we -- the attractive us we'll to existing we we What pay be don't a it will as will exercise. but markets. what ability the deposit in will start have progress pay gathering because for

will it loan time. you that all with our time. deposit We start But should over that will of products in and expect offerings augment out through of sort offering as migrate

Robert Reilly

no XXXX, So really. in

William Demchak

Yes.

Kevin Barker

for amongst behavioral lower due given peers you had reform, a And ROEs that changes tax any few order given as Okay. to -- now, taxes better far as seen taxes? lower they're seeing we've have your months then competition in

William Demchak

anecdotally. Yes,

the So deal cut of quarter plain And in of on sort behaviors price. was that as would first function the ROE. vanilla in suggest competition to of tough loans the and terms C&I people deal are a certain price for willing after-tax

think its end, special… show starting so that any of less So in to is much that I

Robert Reilly

deals to said also able and really the anecdotal -- that like it's we days XX first be enough long special in in access Bill to and the quarter. not that the Like in first saw

William Demchak

Yes.

Kevin Barker

primarily pick it any on you're is is loan lending? So broadly industries different seeing that up that or it several particular Or on competition C&I categories?

William Demchak

loans, after-tax the hold again you thing. C&I a the we It's my most such bank whole you deal price your the of still one on generic to is this hold craziest -- view, an have which interesting. distribution quarter associated more your loan and kind with capital lost actual actually basis risk ago, causes had discussion It's start the and competing have away to the because place, in on

Kevin Barker

Right.

William Demchak

fee-based So we've expect pricing of terms think on in And services I that of would it of I giving at on kind back. margin seen deposit more surprises competition me. and to don't the some see excess all.

Kevin Barker

How much of of the due it pretty do is to amount taxes? versus think you low growth? just loan capital And

William Demchak

that anything this as loans, of that in or on don't where loans. of a go beyond country, syndicated whatever not asset can to offer loan, and loans, institutions they depository And the that something base that number not I less so big – there's XXXX a amount handful Some you the of or It's into have It's also which happening many takes product downsize have in really players. compete run you it's is only entire it's hold group. on we with. credible happening much that's think

Kevin Barker

Thank for you my taking question.

William Demchak

Thanks.

Operator

Gerard Our Cassidy RBC. next question from comes with

your with question. proceed may Your

Gerard Cassidy

guys. morning, Good

Robert Reilly

Hey, Gerard.

William Demchak

Hi, Gerard.

Gerard Cassidy

I question you this you apologize about Bill minute comment already. the opportunities for started seen off you're if your that I had good not investment many to But today. with if a as you've seeing out jump presentation as organic answered

tone about looking that What organic consumer. You've some guys investment of national at are kind already you you other the it? opportunities that are that gives positive the to of talked

William Demchak

Yes.

but in to we space So TM we consumer, markets, the the that rollout digital quite want newer is on success in have list had obviously, to and brings we've importantly the up desire more. C&I The large. in do also things

I lot longer of on table, term. asks the a things that of a us think differentiate sense business there's So the that make lot

which fulfillments for pretty, expansion-based, of rate which was of you've place we environment. a before. effect, seeing offer lot. is can guess me we ask pretty it sort starved customers, has season. invested market this ease as some strategic a session our it We good accelerated the didn't this which of the we firm heavily, talk now do And that our is to about of product serve service, of what investment, lower a where can planning would heard like investment in it is through We consumers, of some product-based, I'm the there's and so which feel consumer in speed the I thing. And we’re Some differentiated is a at

Robert Reilly

would I years. in made over on the couple Gerald, extend much possible just investments that the it I and sense of is because Yeah, that of would – of technology we've last the

So didn't do that we to before be were things we have facilitate, now. interesting to technology able the just

William Demchak

of is increasing on facing our an budget Yes. spending now we're tech as applications opposed And that ever part and consumer percentage building of to running…

Robert Reilly

Infrastructure.

William Demchak

Yes.

Gerard Cassidy

banks of have fact, that big In Obviously, that, of up it, product guys in have. as capability? smaller into a but that maybe how on some following your don't markets you having critical is run the competitors good different have you

this when channel? that, guys scale to if XX, kind is that not you you how have it generate to at guys digital through look is it of – So it of critical, to for a one had at XX important being critical all, being this business one on most ability have you

William Demchak

mean, world, the XX… I in think XX the I future of a think state it's I

Gerard Cassidy

Yes, good. no,

William Demchak

in be be to have to coordinated. Things to They needs fast. one Customer be needs have It information consolidated. place. be to to be simple. have They

really a that of stuff, execute allows that you of All you kind do unless backbone you have core it. can't to

Robert Reilly

expectations to And continue accelerate. client's the

Gerard Cassidy

on capital cetera. not ratio and just stress be going know, the et CCAR guys changes Absolutely. that anymore. been finally, there's be coming news out There you limited payout coming out regarding to then And you to as the regulations is seems of Washington dividend test,

get ratio of review about dividend think? a a What coming guys if we or you years, over of You go regulatory won't you XX%? board payout you look And XX% out enhanced does terms north if couple think in XX%. the do see in

William Demchak

Yes.

Gerard Cassidy

Okay, you. Thank good.

Robert Reilly

Yes.

Operator

Deutsche O'Connor comes question from next with Our Bank. Matt

with question. may You proceed your

Unidentified Analyst

This Matt's team. morning. is from Rob good Hi, Yes.

commercial on this yields. quarter. Just They're nicely up loan

Just but kind new about now? of lending rate hike, of on commercial curious, how yields compare money just kind the commentary higher current your given right March do also competition

William Demchak

for Do new spread I but a actual think... you lot, the on up spreads have me? loans didn't move The

Robert Reilly

on [Indiscernible] four mean,. you the yields, It's

So yes, held up. spreads, have spreads

Unidentified Analyst

were the change. aren't haven't spreads of on -- they're kind so New spot seen deal they a of lot where we

Robert Reilly

right. That's

Unidentified Analyst

a securities yields. on similar points then question They were few down XQ. And in Okay. basis

and Just the curious [ph] where expense speak if you to are? could that rates

Robert Reilly

actually life increased in CMBS on the and They're little decreased was a But change than fourth securities used fourth that the know, a want Prior, the There we book, we the in in to take life. security. in the estimated up standard accounting the an when lot of quarter. be yields you into the accounting that, in the we consideration in yields quarter. have the RMBS, non-agency may Yes. the you contractual because more the going effect, bit changed to the RMBS did

then this after around little for that so So actually yields bit quarter. moves went normal that the them, back for a yields to and elevated fourth and adjusting quarter

print it be XXX, our XXX So adjust for but is down marginally it, might to up. when three -- you

Unidentified Analyst

Okay.

Robert Reilly

little say portfolio in. that add carry bit thing the on the on purchases a I'll would a our I other treasuries, which largely were just quarter first The securities too yield. of lower But

Unidentified Analyst

much. Got it. you very Thank

Robert Reilly

Sure.

Operator

Woods. Keefe, question. Our with you Bruyette your Klock Sir, question with Brian next may & from proceed comes

Brian Klock

guys. morning Good

William Demchak

Brian. Hi,

Brian Klock

on Rob, the want follow-up So expense I to side.

spike has bump from first you much seasonal us much quarter how On get and that versus the quarter? how And the compensation? second remind can that you incentive of and personnel maybe the expenses, in the quarter the is food, first

Robert Reilly

first well first that little be if earlier I investments so on in the is call That's that's quarter, which of just bigger the made. to the sure, in issue a acquisition and terms so business promotion, as know we've on don't definitely there, expenses, the more quarter-loaded. the year-over-year The were for as merit leasing and tends bit you is a

Brian Klock

Right.

in they quarter the the low-single-digit then, guess, quarter. I the – for growth guidance, the the So, from second have first

connected guess somewhat So by is is for the And personnel that expectation personnel? acquisitions? the recent I same

Robert Reilly

– on I increase that reflects our say higher say second Well, business would most I we the the yes, of activity expect yes, as fee quarter, guidance of would the in part what particularly the side. expenses in

Brian Klock

Got you.

with go that? revenue up – So going there's to really be should is just in is and expecting going growth constant, just mid-single-digit to the you're comp but to this fees ratio be

Robert Reilly

done I right. Yes. that but generally math, haven't that's

Brian Klock

Thanks financial Okay. you quarter-over-quarter, quarter on for basis business, that. that I look that I just the I the side, was on in I balances when think, warehouse for the a earlier said down mortgage follow-up us loan warehouse know, line was All Can And $X.X the right. table on growth average know, each billion. were up services at spot you business? tell six what question,

Robert Reilly

a which But the had line balances a that lot is that down quarter-over-quarter of don't quarter lot warehouse. the our – for are securitizations I first strong balances. the have because quarter. The a in includes

categorized necessarily companies, the structure financial facilities two the services of but aren't way. because those that of So

Brian Klock

Okay.

warehouse on on was And not it the spot also? down, business on average, was down basis, just spot a so

Robert Reilly

Yes, that's right.

So…

William Demchak

know You that?

Robert Reilly

the warehouse the sort low paid I I we know know in – which was – actually of Well, that. I in get it's don't down terms of can where but side facility, the average are, there. average quarter, the because… the the fourth the elevation number, on fourth in the quarter, but you

Brian Klock

Okay.

Robert Reilly

…typically first in the quarter.

William Demchak

that offline, you get I can Brian.

Brian Klock

Okay.

core activity seeing the that rather probably that a And you you late? bit so think quarter, would guys are in normalize little where maybe so offset of will growth securitization fit could second the

William Demchak

eventually It normalize. to ought

good actually a pretty though. have So we pipeline

Robert Reilly

That's right. That's Yeah. right.

Brian Klock

All Thanks. time Appreciate right. guys. your Okay.

Robert Reilly

Yeah. Sure.

Operator

comes with from Mike question next Securities. Wells Fargo Mayo Our

You may your proceed question. with

Mike Mayo

Hi. My the question's market commercial. on new strategy in

be might So Houston, next? total how might to? cities after what Denver, cities you expand year, and this Nashville many And

William Demchak

name have exercise, let of I'd not fact, C&I than I target matches just corporate that of started Well, our are were you against half, look yourselves. kind without markets off for And in think, that expertise. we this And in cities that large maybe have – them and we suite cities, we the when naming opportunities. population less we could product that

Robert Reilly

right. Yes. That's

William Demchak

success don't had would know time out I of and what Through them. we we've will as but hit opportunity most rolling itself. we means, keep presents time,

Mike Mayo

City, Dallas, Kansas can I'm Minneapolis. see and look And if sure you success, you at

outside, in aggregated But be the seen Houston, in in is right, going markets. new new you've success that to the said we, see Nashville offsetting. can't the on You Denver, investing results, the we because

investing And harvesting? aggregate, market what generically, to invest new going is city? – what's strategy, the from to time a just you the you guess go that harvesting new for total investing I in time in So for total from the

William Demchak

I maybe Well, example. at Southeast, look best let's I guess, mean, the the as

when balances. So and there. fee-based grew In importantly, markets did that is But bought a you're acceleration of met sort much branch, quickly; We cross-sell the that we've years newer it's with a probably couple that just entered, effect year. deals probably and We at network RBC really the three customers. in they return volume although saw and products. we we on what a we pick the had branch a before we looking don't to cost pretty that before breakeven contribute, start get breakeven of We they three on to big money. year. in capital really But you're up, basis,

Robert Reilly

cycle is corporate – that which banking basically. the sales is Which

William Demchak

Yes.

Mike Mayo

sales… And with the

William Demchak

continuous. this just to are of those get we investment continue, right, if course, sort we dollars get that – of If this

So harvesting as in other be start effect, new ones. we'll markets we

drain. have years. drain right small in So we be done a six equal, else net net two because now a All we've it won't

Robert Reilly

encouraged that's terms Yes, receptivity our… our Look No, it. get we're I in very services, right. in of products, to that our measure, broader

William Demchak

new Client calls clients… to

Robert Reilly

Yes, our client interactions.

William Demchak

working. It's Yes.

Robert Reilly

high. The energy is

Mike Mayo

Look, up are year-over-year. more little it. I your No, get $XXX million a follow-up. than more One expenses

a spent spending XXX times buy $XX you spending As bank, more, you you're $XXX billion, million. you're

what's your and very you against competing so you as of But new tons of said into the causing loan what they smaller claim these against markets? that pitch of very competition, it. Because C&I banks I are pitch sales that's lot large product I the questions. But have scale more get your you You broader the and them. so sales pitch banks is suite, get all you loans, the new a go some good guess as sales are that have have these who are against a market? a

William Demchak

and JPMorgan Wells in we're against in. compete We market BofA Fargo every and

Robert Reilly

That's new. nothing

William Demchak

all a to A client. same equity That's and team, not with and service small market thing. We us. a or a is do large very are of the surveys. the the XXX. market equity in and nothing new do TM we’re relevant And But not middle new. into We for business our We're in corporate against go a time capable that Fortune of go that we markets with we type We works these our capital with the credible, in in leading go a all for market And the we in. the things win it and trying lot business. deals already to

Mike Mayo

Thank you. right. All

William Demchak

Yes.

Operator

We time. this have no questions further phone at

Bryan Gill

Okay. the call you us for Well, quarter. on joining thank all this

William Demchak

everybody. Thanks,

Robert Reilly

you. Thank

Operator

call. today's concludes conference This

now may disconnect your You lines.