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PNC Financial Services (PNC)

Participants
Bryan Gill Director of Investor Relations
Bill Demchak Chairman, President and Chief Executive Officer
Rob Reilly Executive Vice President and Chief Financial Officer
Scott Siefers Sandler O'Neill
John Pancari Evercore ISI
John McDonald Bernstein
Betsy Graseck Morgan Stanley
Erika Najarian Bank of America Merrill Lynch
Mike Mayo Wells Fargo Securities, LLC
Gerard Cassidy RBC Capital Markets
Ken Usdin Jefferies
Kevin Barker Piper Jaffray
Brian Klock Keefe, Bruyette & Woods, Inc.
Call transcript
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Operator

Good morning. My name is Lynn, 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. reminder, is a recorded. As Instructions] this being call [Operator to the of I turn over the will now call Director Mr. Investor Relations, Bryan Gill. go ahead. please Sir,

Bryan Gill

earnings today’s conference as materials. in materials, Rob call included contains statements all obligation are statements are measures Well, non-GAAP Welcome as Chairman, October filings Today’s President Financial pnc.com good presentation and investor of as Bill PNC’s speak well well Vice Group. other call Demchak; available about website of President CEO, today��s no SEC to These CFO. XX, These release and update Services this thank our Investor corporate Cautionary PNC Executive for reconciliations this forward-looking on as morning, Participating are as Relations. information. and XXXX, them. information, under only the undertakes Reilly, you, on and and our to everyone. materials PNC and

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

Bill Demchak

income strategic morning, direction. and you add all Overall, financial highlighted I $X.X delivered everybody. per our continued and in share. billion, common Thanks, the of grew. Bryan, really Net interest solid and moving clients. new expanded right our diluted another key fee we NIM This on We progress and or income seen and loans would priorities PNC thought third net average to morning, by good $X.XX grew quarter metrics, reported quarter, have deposits continue increased, income we

high category than months, increases every with hit other In nine record in mortgage. a for fee fact, through income we residential basically

know want we’ve and dividend watching something $X.XX I raised second, closely. loan Credit were And for a August. of do touch tangible again, value charge-offs quarter expenses increase manage down and strong with on growth share well nonperformers small to the because it’s net this to We to remained reflecting per activity. higher business you I also the quality our grew book in continue all with quarterly

by in did own our we We in higher and factors, appear this excess combination non-bank the growth to overall at competition, quarter. payoffs less of opportunities our consistent attribute industry paydowns faced below grew which be markets. attractive several our in utilization. competition, higher meaningfully from our secured they cash a our roughly and real collectively see quarter with a data, lending the this excluding the lenders, The driven and and line and clients businesses, came competition lower Interestingly, corporate expectations. payoffs X% paydowns for of to elevated including modest comprised While bond growth estate, book loan corporate almost third quarter shortfall

a can in doing challenges, are Now, we solutions we is Street we directly, model world-class what Main impact providing service. recognize while value-added can executing of them these our upon and all

deepen customers continue We meet that relationships our add new to risk-adjusted returns. and

strong, are consumers the up On this a growth going economy fourth Rob is and loan great later. are with see consumer you is as quarter growing. optimistic you to review really modestly to quarter bit again for is side, our while quarter. loan and pleased shape outlook I The was companies financial in And

In challenges the a of outlined to moment may addition, disruption I ago. alleviate recent market that help some

supported market national growing moving forward. and So, end, will experiencing national retail with digital initiative see savings corporate loan our continued we franchise opportunities expect for are we launched retail checking accounts, network. expand faster success strategy, banking our to by to a also growth in we which and To our be offering And virtual ultra-thin middle an recently wallet that high-yield our account markets. leading

City out-of-footprint first in location our earlier retail week. Kansas opened just this we fact, In

I growth and hand work are for it about positioned their And that, before trust excited to Rob. we how employees hard want our Rob, our to through over their With the we well for work, brand, are as to our to us. continued we as you, to expand over clients I drive just As time. of thank reach efficiency in

Rob Reilly

and Thanks, Bill, good everyone. morning, Great.

now, or share. $X.XX billion, reported As by diluted net income you’ve of we’ve seen $X.X common per

Our on securities $XXX X% ago. mortgage-backed a treasuries. Slide U.S. linked-quarter. is linked-quarter were the $XX.X an billion, primarily presented or increased billion balance of securities agency residential sheet $X.X and and is loans average Total same grew X quarter basis. on to approximately and $X.X billion year million Purchases compared Investment

at cash third both Deposits the year-over-year up quarter, on balances year-over-year. and the down billion billion X% linked-quarter averaged and for the billion Our were basis. $X.X $XX.X $X.X Fed linked-quarter

Equity XXXX, XX, to XXXX, of in other return June X.X% XX, to reflecting As from of income. estimated was X.X%, shareholders September Tier-X our capital decline Common accumulated a as and Basel be continued comprehensive ratio down III

$XXX Importantly, maintained $XXX repurchased paid we $XXX million. We shareholders. to common ratios X.X for we of capital strong even of million and as capital returned million shares dividends million

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

average on was on and our tangible equity Our common return return XX.XX%. was common equity XX.XX%,

was Our a September X% XX, value year increase to tangible book of an of ago. common share as $XX.XX compared per

up compared Turning million Commercial quarter. Slide compared balances $XXX approximately last billion, approximately the X% quarter to increased the to X. and to lending $X.X or year. million Average $XXX linked-quarter same loans were second

total the throughout payoffs Compared year growth to of exception and were of and same mentioned, a with increased the lending strong which much but real our billion. estate, declined paydowns the $X Bill were $X As commercial ago, was quarter billion substantial. broad-based by quarter, pipelines

to card residential loan seasonal increased linked-quarter decline. period portfolios, a Balances billion, the billion, momentum our Deposits seeing $XXX same mortgage, year-over-year. equity ago. by linked-quarter year by driven On billion consumer credit we’re and continued growth in or Importantly, a home to in deposits $X.X lending installment while increased had growth unsecured $X.X X% deposits. $X increased and approximately commercial education lending. basis, in and million compared auto, We by

deposits consumer quarter, seasonal demand spending. reflecting the consumer During decreased somewhat,

higher rates. increased However, reflecting our time deposits

Within increased cumulative the is the commercial beta in commercial by deposit cumulative third that quarter overall and number, driven XX%, beta stated our shows, level. near slide the to As our consumer. both

cumulative betas, to only which driven overall side stated Increases a the beta expect in continue forward. XX%, is be our our However, will compared by primarily we consumer going level consumer XX%. to of

As growth you quality increased driven quarter to net the linked-quarter, Slide can increased business overall both was credit third strong. quarter, net interest Revenue in for second by dollars, the third income compared as in $XX up and the income. X% expense $X.X was X, X% see on to Noninterest billion. Provision income quarter reflecting activity. losses credit higher slightly in fee remained million

tax timing in third XX.X%, occurred rate was that third Our this result of was year mostly the benefits this quarter certain effective and a quarter. in tax of the the

You’ll was in at XX.X%. somewhat our the rate recall tax second quarter elevated

rate when year-to-date expectation year-to-date XX%, So our combined guidance our and effective was basis, a full-year viewed tax consistent with XXXX. for and on

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

income costs. income from X. grew compared year-over-year. interest quarter. X% higher or by increased million, The Net Net X% last comparison third to of and were the X.XX%, year, same additional and decreased $XX basis in compared interest increased increase Total revenue linked-quarter Turning linked-quarter X% earning was day quarter. partially and the asset the points an funding higher Noninterest $XXX margin second also yields linked-quarter as X an X% period benefitted year-over-year. and balances X% Slide linked-quarter to million, or X% to offset

which our mortgage due increases increases fees It’s worth benefit million linked-quarter a quarter. fees, BlackRock a the on rights X% to that lower reflecting $XX offset declined to Notably, income increased seasonal in services million, had or fee advisory syndication quarter. deposits higher basis include were: Discretionary Williams markets. billion, M&A asset loan management income commercial equity compared another for X% same residential also charges higher the or fee with a last under fees. linked-quarter record earnings million, main X%, mortgage. the in grew fees, quarter in category and noting record fee was Service equity partially our $XX our in management setting by increase reflecting and spending. year-to-date average $XX Importantly, a XX%, servicing lower $X.X year. The every except investment increased primarily consumer drivers $XX of from Corporate assets Harris billion increased from on

decreased quarter, fair adjustments positive partially quarter negative income million value offset the were private in third by of Finally, million higher resulting and in derivative This $XX second investments. was change $XX a noninterest other linked-quarter. in Visa the million. equity $XXX of

net other securities of Going and we the for excluding activity. forward, continue and to the run noninterest quarterly rate in Visa income be million, $XXX $XXX million expect to range

X. Slide to Turning

quarter. Third quarter business linked-quarter, related day million largely in Personnel million, activities increased expenses, a incentive expenses or expense linked-quarter. of to additional increased the X% compensation as $XX result an by and $XX

staffing increased in expenses minimum wage year. Compared every expense the made beginning our reflecting quarter-over-quarter. declined levels Importantly, employees business year-over-year, expense the a growth, and ago, revenue the million. investments million grew we to to period the increase commitments to the of other at same higher support year Personnel category hourly $XXX $XXX

marketing increased expansion growth, Additionally, including to expense our support efforts. digital business

year-over-year third both in Our the was quarter, XX% on and linked-quarter ratio unchanged basis. efficiency the a

by are achieve know, you will have through reduce cost we confident to our As million a we and goal $XXX our program, target. fully we full-year improvement continuous in XXXX

up and compared increased X quarter. Slide Provision the down was to included net points Our results. nonperforming provision, auto strong. linked-quarter, second $XX consumer or summary, Hurricane credit third to quarter, Florence. million ratio and to XX-day annualized credit the card the X%. XX-day metrics $XX $XX the and charge-off delinquencies growth. In were loan higher impact on of in basis X%, credit the posted or X $XX to third decreased linked-quarter. million, are down PNC to related remain quarter higher a points, of were XX million charge-off loans for delinquencies primarily total Net reflecting second quarter, million losses quality the loan strong by presented basis In Compared $X million, bucket, due Total auto

expect we the steady growth we increase quarter, During in December. expect continued in rates GDP, one in and XX more basis interest point short-term fourth

quarter we fourth up to reported to quarter loans ahead compared XXXX XXXX Looking expect be to results, third modestly.

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

noninterest to We income be million million expect range. the $XXX in $XXX to other

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

Operator

line phone Siefers first Scott Instructions] comes the Sandler ahead. on from you. Thank Our of go with [Operator line O’Neill. the Please question

Scott Siefers

morning, Good guys.

Bill Demchak

Scott. Hi,

Scott Siefers

Okay.

question on is guide First guide the growth. fourth the consistent the third with loan The for quarter quarter. just for

could look as seem maybe at growth loan that be to trajectory. for you little be like guys same economy? the be given you would be And the I for a in that we in would if curious something PNC level, the Just to guess, the us Bill, just overall strength industry, better impacting expecting what that a you growth to factors banks towards then, it where give sense for Should why? numerous reaccelerate of and you are normal, it given to the would more cycle, able expect be we take

Bill Demchak

questions. good All

our sits little bit third guidance I as over forecast rate better. But So the our I the would surprised that seeing you growth also we little up up for is are had that say third the a the by would quarter, bit quarter modestly. in that we fourth quarter. a tell we were it today so

Our clients against expected. this we lot saw saw - and actual we We utilization new broad-based good. that saw though, drop hadn’t pretty and paydowns production of we were that

and at in know, look forecast out disruption some the don’t funds, that why we value which forecast I I - and down, I that. how So think maybe some will that of bond of I lost but is of put we this know did. slow will to that corporate some don’t for the

CapEx growth As are companies, we what forward up. should investing, to they you say, expenditures are bullish I and we think see and and talk really trigger here? going As they

you banking as just of sort then even follow would loan all markets, lot we’ve of and through it these volumes. grade would are and seen I’ve the charts the think, growth. seen of the playing the corporate shadow in volume has against volume Against BBB so investment-grade And non-investment that, taken a borrowing of system preponderance, of the of banks which bond of inside size all of

for in play we the least, are third we So, in in I impacting would have change that out the at but like it some market, think, structural to think us. would the better, quarter the saw I that, near-term changes that

Scott Siefers

rising could bit I side, Okay. And the All shift second color. switch growth appreciate total if rate I mix still right, as one to our deposit Rob, that of but would a in fine, environment. then, you a for expect deposit little

Rob Reilly

Yes.

Scott Siefers

made some mix be had how deposit your the guess we go of comments, about forward? seasonally. I best overall prepared as the note down would demand think What in book you trajectory for deposits being your

Rob Reilly

the to expect would interest-bearing I be and between noninterest-bearing.

Scott Siefers

Yes.

but your I thought could was think I sorry, wrong. - I deposits, be demand comment on

Rob Reilly

Yes, and your this question I just tell if in - consumer and answers then just the the commercial side. of way terms I you do the me

are we what on Again, deposits, side, are which we’ve seen side, and beginnings in consumer of then the the of commercial you noninterest-bearing a seeing now of in On And a rate expect. environment. we shift from to for the natural which interest is a shift would time higher seeing somewhat sometime, reflective bearing. all savings,

Scott Siefers

Yes.

All I good. Okay. sounds appreciate right, that color. the

Bill Demchak

Sure.

Operator

you. Thank

Pancari the question line John of go ISI. from Our next Evercore ahead. comes with Please

John Pancari

Good morning.

Bill Demchak

Good morning.

Rob Reilly

John. Good morning,

John Pancari

expense Any on discussed. as of the - particularly the thought some look through you to on just side you side, pressures given are trends, you the equation at expense looking get - as of importantly that balance CIP of the year just the loan into particularly and on On you the XXXX? rest the more constructive side as goals, more the this sheet

Rob Reilly

John, is - this So Rob. hey,

expenses million a and was all other Virtually all if personnel the Every incentive part of to this we’re the of back so that is our well. of at sort drop year-to-date, of category on $XXX linked-quarter year that And look in expenses of expenses activity that was you far effort. look that linked-quarter, When business level. in reflects XX% related down million and of our linked-quarter over in essentially we and went that at year-to-date, the broader million, - CIP compensation take in story. up So, higher personnel. our of in XXXX. the the did quarter And XXX or the you XXX tells that increase

is is expense number, investment, thing. other typical down, are Occupancy marketing back in expense, a line as a in a to compensation, that personnel that’s merit is all as are and But that see, of million, to $XXX year this the of part So I half about is what other expect a number. earlier, good. categories and out good our but equipment that smaller little which of pointed year, would is you higher is promotion, as incentive half which well that

raise make build expansion support to well and that geographic our they hour. are every our we’ve $XX half out minimum corporate of made our year. reflects expansion in to the really in commitment to an other physical hour, headcount and other that the The $XX made banking as digital - that, as we wage minimum to technology, higher But $XXX represent in million XXXX, investments consumer strong, an we the they pay banking, investments particularly

Obviously, see little like that fund and time. part, technology the all reflects about we the through a million we’ll expect more. that So $XXX where million investments, of investments investments, in and $XXX that bit to on we talk that return

an $XX that attrition will expect rates continue. we would we’re the already raise to the hour, lower On seeing

all deliberate our and - on and is factored that’s discipline our So in, track. all expense program and that

John Pancari

Got it.

Bill Demchak

serve I clients slowdown one growth. off rate, space don’t find like and to of That’s to the of John, as slower digital them real answer. answer, is stop my the because to on to But in over our expenses which you we’ve would want need mean, a able mistake quick right the produce and we do. been look everyday and our in and quarter loan self-funding the ways same at view not to the idea I that we be product time, knock of growth in largely cap industry focus the kind changes down. see to takes are At that happening banking in the try investments. I

John Pancari

Got on it. here combined about capital All of right. sitting XX%. the ratio a separately, Thanks, about side, Bill. And payout then at

past think look could You’ve the How are go a that CCAR. your alluded thoughts to do you as And look - to peers too where given payout. give might you been - there? XXX% potential around we forward? you to you here us increase your conservative you Could have Thanks. you this updated combined as do bit

Bill Demchak

I little to recent it went reasons in specifically go us for of payoff, said getting a sense a why we we the as bit Fed without couple Well, back did conference, a There light. at made to into are and resubmit. realize

We are the in with conversations Fed this at point.

don’t of tend you some case, CCAR put I provision loss base that We, get case, I CCAR kind detail assumptions things. and we have have loan on the And the On in tend out-earn Beyond there. on because any payout. give. to to other more idea of of always longer-term, our to of largely XXX% our to a some then, like

we back to at So get that notion we be, this over we’re and to return XXX%. budget goal too. have try point always from this XXX% struggle we for back XXX%, to wouldn’t solve to to with But our maybe holding capital not

John Pancari

Got it. Bill. Thanks,

Bill Demchak

Yes.

Operator

Thank you.

next John Our Bernstein. the McDonald Please with go from ahead. line of comes question

John McDonald

I the Rob. could the seems was the - of you from regulatory based see that on potentially wondering rules. morning. benefit EC liquidity it good some Hi, on dialogue, recent

magnitude Just do to is things would now? EC if sheet can’t remind could an of you do how think or And for that there rule us on mechanically happened, the allow us to some that anyway you balance perhaps your about benefit? LCR the

Rob Reilly

or securities. be liabilities. redeploy we to the pay a the at would, In that optimistic the able terms, of way, Hey, favorable higher-yield simple year, We easiest good other something all and occur. Fed. think, in easiest have debt morning, the there’s - that to options, billion in way, We’ve will a on able at we’d Yes. deposit instances, The the this lot take be $XX down we look John. would spoken to are I be about obviously,

rule the level need and - you be conservative accordingly. debt just reduce short-term then establish to would that think of what debt the I liquidity

John McDonald

you had your to Okay. do current with wish And I things liquidity. more environment, guess, in this you

So just kind that? more of of add, I guess, to

Rob Reilly

that’s right. Yes,

John McDonald

non-price And kind player the threats into think more a of markets. days? ask you’re maintaining Okay. on guys branding you you’re new the comes and how question, ways road mobile, digital different obviously Bank and in hometown, incremental into your America when competitive are to taking market about PNC to that have about you a like your of I on wanted compete able these big you opposite as do ensure leader? talked And with factors position little a

Rob Reilly

that’s so is Bill may that’s - Well, that’s that’s dynamic color. want that’s the dynamic - This This out. out. playing add Rob. to the some playing

We’re excited our about that, initiatives talk In control into can we regard more markets, legacy which we the are We sort offering, on a bit expect will occur. that fully going other the out-of-footprint providers little of that we coming digitally-led about. that. to can’t

Bill Demchak

would me a compete to that. experience, some you other tell we think, I whatever the maybe percentage there’s bank. We different up of already where them always rate somebody reason Pittsburgh. comes somebody our everywhere with into amount that some try into the growth we I a tends suspect of wants market dominated for Pittsburgh, are The to they’ll in And go surprise largely, pick than population by and own underdog. if because And else I

presence market share and go XX% sitting have really left in around or major bank there’s without XX% something We Pittsburgh, here. to

do fine. I they’ll suspect, So

John McDonald

thanks. Okay,

Rob Reilly

not but customers. with Not necessarily - our

Bill Demchak

Yes.

Rob Reilly

Yes.

Operator

you. Thank

Please ahead. comes go from question next Morgan with line of Graseck the Stanley. Our Betsy

Betsy Graseck

morning. Hey, good

Bill Demchak

Betsy. morning, Good

Rob Reilly

Good morning.

Betsy Graseck

just One, more one on expenses. questions. Two

marketing up of doing. a this little the investments the or partly So that you’re a bit quarter, function and

much you’ve you’ve then to related just think, start-up ongoing I from Because that and that digital marketing. how got here? I’m it’s wondering got of banking. persists the costs

of some bit? should could done, maybe is So or you talk a as start-up that that through fades that we little expect

Bill Demchak

We kick Having of You’re total quarter. going program the off the the quarter, increase. $XX until offsetting said to things. probably some that, quarter the full in have impact third think, the digital raise we was late didn’t first had third the I

what a script. in personnel bunch So and in that’s moving do whole we’ll there’s all of pieces And there in Rob’s of marketing. between embedded

Rob Reilly

our fourth the quarter. guidance is notable fourth happened, the Yes, the quarter and initiatives. I most marketing directed and in hasn’t actually, expense digital is the increase that for will marketing towards that Typically, think, that item largely

Betsy Graseck

on markets. bit Is there persist equation? us you or could branch that your rationalization there, little kind of core talk current that done, at legacy just your is And the you’re a about run the in then rate? to or levels, there to give more Is - of doing rate side run sense do you that almost going a

Rob Reilly

Yes.

there, this steady a And our pretty been year XXX on a about comparable track to plan do year, the we’re averaging consolidations We’re for on year, and Betsy. we’ve number.

continue. that’s and to path, So the current expect that I’d

Bill Demchak

effort accelerating a into that to Yes. Part of time we and the is the for preparing of amount with issue put close. customers branch

sure we is important as branch. retain a more that practical than a to on we lot go - doing. could that a that the if tells I’m we client matter very the at balances on us attrition based a the what’s actually of of We XXX spend and we’re And do customers kind than we consolidate as that or more that. market So, until the and need continue not time substantially rate slowdown. And we’ll year run currently to that

Betsy Graseck

Got it.

Okay.

did the just last you And out there us efficiency as have operating the of years. couple know then that markets? Now - just improving positioned? mortgage Could new build of a you yourself on side. I these you And in some created leverage how into for of helpful. over is strategically lot some the tell that’s you lastly platform you

Bill Demchak

where to that come that, digital closing will effect are into that, to not, loan home we we we’re an yet. have home a with out-of-footprint down duplicative our capability origination of it Today, of equity today, are two costs running We that exactly Well, got we on believe should systems. finally platform. improvement market from where home not sure we on where choose and at go terms branch. equity to in as the are I’m or equity we at still With bringing you’ve seeing last offer to origination PNC. sort personnel But leg that’s capability of close in dramatic the a

home this of increase. would of system change on volumes, platform and servicing which independent all same hope mortgage So front equity same the of puts we and sort

of costs see that system. to continue You’ll bleed out

Betsy Graseck

Thanks Okay. much. so

Bill Demchak

Sure.

Operator

you. Thank

Our from go of Bank next question Please Najarian America. from ahead. comes the of Erika line

Erika Najarian

morning. good Hi,

Rob Reilly

Good morning.

Bill Demchak

morning, Erika. Good

Erika Najarian

a follow-up back Can of I the more Fed structure. market, as private little as tenor direct about in the non-bank? can sort I curious mentioned liquidity much time? structural with to the bit, Bill, go competition But a of observing competition which ask to competition of really in the agree of from I’m And how that, what from about I then on And continues changes you’re terms over system, with. out the the most dream opportunity And regards to wonder middle you market lenders? banks to of

Bill Demchak

as I Again, guess, pressure continue Yes. rise, think originating is that And think going to overheated. what as rate good it’s LIBOR not that real the put say much necessarily that on questions. loan I turns. those going all environment does. it that Eventually, and leverage I is, continue against are to lower market hedged as to would rates we up credits

- in of open being Now while participate equity. forth, don’t financing leverage And has loan relates that. them play really and flow, transaction so as the caused the as it our don’t TM we private that of private have is it near-term middle of number But to it our we is market to a kind as might market keep we companies in client to we go as that a historically banked market.

in system that forth. rise. But think and into there’ll it So think, M&A do out that. some the that often is banks. kind of the when CLOs you’ll of just banking it more and I into so don’t to traditional a be that levering back I loam wave putting know as see the pulling flows rates timeline by crack in probably point And continue happens, at And I demand

Erika Najarian

you. Thank Great.

Operator

you. Thank

with of Mike ahead. comes Mayo question go Please from line Our Wells next the Fargo.

Mike Mayo

Hi.

Rob Reilly

Hi, Mike.

Mike Mayo

Well, that in to thanks Bill, tough loan happening than forecast. of your honesty, with terms what’s for your growth is

So you you back accept want could go pause. could be at what’s could mean, send do place, when message sorts kind PNC, could of to all could your you be send? you taking team you you of I happy, messages, angry, or what you to

we could let what say, be - you you not “Hey, to be do as there. is as we’re say, craze out you need me you’ve happy know, see Or cycles you and these So could well seen the better” executing “You because angry, before,

team? message We’re be not going going going what, pause be you or to to will better and new just could “It’s sending you is So stick what that’s taking - weird accept could Or Or we’re just and “You know your something” you have to happens and what program next see say, what’s and - this place over the fine” you couple of to say, quarters” you and get could what do we a expense or to

Bill Demchak

- I don’t sense. don’t of Mike, do the I to following any really above in the have

the box, we and to we just same bank. PNC, can’t ones I’ve it, we want outside for clients been is at same have are that risk credit we do our of model, since followed box, We the - control the bank the And the market. don’t same

was what about weird Now third of the we was, actually a lot quarter business. originated

loan practical there’s bank. want… that the never actually can go will as could matter, about the by utilization the in bankers down do our and with new clients says, can be simply you had went I growth. paydowns, brought make nothing environment the the way, but the And we’ve a loan that. And and by we number be growth on we I activity I’m sense very that get I’m It Board. we So, of whatever easily. of pleased disappointed

Mike Mayo

Right.

Bill Demchak

we’re the don’t six or We cycle next the - on good a grow produce year cracks we - to a that’s need and ability and our till three given after. that. it do - months our just or in our to of income what consistently bank fee dust don’t the plan it, use cloud do do franchise, …for a forever to in you just you hours and and

Mike Mayo

do So you...

Bill Demchak

to I on this question expenses. Your now. back get

to But So investment in in choose curtail everyday of expenses. have drop would it - choose not expenses And terms on resiliency are. client-facing that look data that’s not our near-term, our that we’re fighting We simply that’s again, choose lot in are we just do to active who could digital. us. expenses choosing that, could long-term, to choosing to having kill great, to said to think curtail of And I and make the centers of our in loans. And cyber. a and competitors the in that applications. would We do could investment we on

Mike Mayo

me this I straight. let if see So had

So through saying, you’re you’re Is cycle. barrel way your years since think entire - that environment I several paraphrasing and will to you’re your I but that’s it an come last the eventually correctly? strategy the I with worked mean for looking going hear through

Bill Demchak

say that Well, top deals outperforms industry so be And credit figure not heard we hit to, our downturn. yes, by be I slow world their banks growth chasing don’t that by it. margin, metrics until to at in of can have So goods is always in you’ve means environment. on you are with growth sold return the want out can that the And have until me the to credit, bank who live just then not line the or forever only a you you loan your cost And that right? lying crunch. or respect where that

Mike Mayo

or that And some line right. borrowers the corporate? what the from of else is utilization, then lastly, the is just going elsewhere, All

Bill Demchak

not equal, flush. has what The And on all That spending rate totality think I cash incremental the they’re that in increased else in one difference companies. is simply basically are flow - corporates tax CapEx. lower

they’re dropping utilization. line so their And

that… think I

Rob Reilly

exactly in opening Mike, jump his can is on Rob. Hey, this referenced I that. and this Bill That’s right, in comments.

expect we If extent, a that’s repatriation, general is some issue. that and that’s talking you which abate, our two things the at plus they in you’ve they headwinds is items point, about Those these and paydowns about headwinds. commercial pressure the take loans, lower tax are all is function rates, that the To at payoffs. the look corporate where cash And are might a and dropping the the which most that book. read borrowers, that pressing - that of we’re utilization two

Bill Demchak

six the But our stronger we’re it’s today this stuff looked forward the great. the rob does. months, looks last by it our only And so pipeline on Mike, sits I in these… And months, to as hesitation Yes. than - going the it in knob. think, It is way, looks yes,

Rob Reilly

Those headwinds.

Bill Demchak

of business our of winning borrowing of lots and/or through environment or up criteria paydowns our paydowns, - get because deals disappearing less market this our we ends meet existing and either public …out That’s… What is risk were them. is, taken happening that book in can we’re private. they

Mike Mayo

That… Great.

Bill Demchak

Yes.

Mike Mayo

Yes, helpful. that’s

Bill Demchak

All right. Thanks, Mike.

Mike Mayo

you. Thank

Operator

Thank you.

of Gerard Please ahead. with question from RBC. Our Cassidy the next go line comes

Gerard Cassidy

Good morning, guys.

Bill Demchak

Good morning, Gerard.

Gerard Cassidy

those at represent talk When for where the crisis, just a deposits to deposits? what you maybe a noninterest-bearing risk environment, when you environment, have rate prior you to at out in financial at PNC, fall? total to the think about tend rising bit do rising Can those levels a look that’s of rate your think about we in were, levels, everybody a little liabilities, which as interest-bearing back do XX% settle you going -

Rob Reilly

before, to all watch that’s can mean, obviously time. that we way. going lot don’t where to because be, stop there’s handicapped Yes, either it’s it’s where But - be a or there. I would going it’ll the variables manage this involved continued of occurring, fine we will it occur. the really I that’s way obviously, expect say haven’t I we theoretically, Gerard, I shift that.

Gerard Cassidy

that I there lower rate. that’s you other sensed okay. coming competitors competing maybe the anyway tax Have away of And to you back on then already seeing some lower of or happening? addressed. with the lending that tax if have Is rate commercial competition see, the

Bill Demchak

For all heard the from seen the were that talk haven’t margin. doing maybe was around some some that, we’re that really we clients actually There that competitors that we But early on what seeing. isn’t practically, at talk it.

flow cash kinds people and on I But reform. We’re of things. ABL seeing those deals outright or that seeing structure, of going be rebating tax sort see don’t competition should

Gerard Cassidy

finally, it just competitive expanding commercial Okay, been you also this area newer seeing you’ve into? is PNC in I that it see. markets in footprint, in that legacy you’ve your the whole or And primarily referenced,

Bill Demchak

which you’re a commodity. it’s technology, secured money, right? then by that is competition special And there’s is that market, the or of commodity, way, everywhere. skill there’s And intuitive, what a you’re offering - If offering a no in It’s for financing There’s special commodity. no this involved. lot

Gerard Cassidy

No doubt, no?

Rob Reilly

As factors a part those place our are in and growth of there. of though in do your question dynamics even because it’s a smaller expansion better though is, growth markets, base see just we

Bill Demchak

Yes.

Gerard Cassidy

Gotcha.

Okay. Thank you.

Bill Demchak

Yep.

Operator

you. Thank

of line the from comes Please Usdin go question Ken next Jefferies. with Our ahead.

Ken Usdin

been wondering us I Maybe you’re mind? - what morning, banks has your this about directionally? size potential. and conversation discussed know I’m talk of in sits help liquidity? regulatory or front And that the either the at Recently, Good But you’ve point talked Thanks. this the your just some And capital on guys. there for just hoping from - past. where in - talking

Bill Demchak

spoke in think to and talked last testimony, Quarles I Well, about… he Governor this

Rob Reilly

since. large XX The

Bill Demchak

something market the with We dialogue the before with do. the what my sure to out and going exactly the own have Fed. XX large that’s having since year, of - they’re in the I’m consistent end not

think, and of LCR, items… it on sin notion of XXX. change see thinking we in the rid notion only relief the frankly, about relates step to like the The to see XXX. relates Not you I the of below get some the bucket to as as the would capital you the group’s to it but that function they’re

Rob Reilly

AOCI.

Bill Demchak

with as so up function a of inclination to doing more the see. ago. there we’ll firm size some on put an step finesse the that years they came other off think, regulators the to things, and opposed …yes, and But allowing to amongst regulation to fifteen value of AOCI I is asset risk fit have

Rob Reilly

Ken, call yes. they Which tailoring

Bill Demchak

Yes.

Ken Usdin

Yes.

got Okay, it.

we’ll choices just So that the And the that follow-up see and on that. a of on wait then on mix the excess cash. have you

term But of in what’s versus portfolio, new you now off terms are types seeing right rolling at in doing of rates of up just obviously, the book? you’re - what is securities terms in the in period-end. investment was Just the back book

Bill Demchak

Yes.

actual a or securities were received things. unwound we The duration because up just flat, position. but balances of So swap dollars quarter-to-quarter, were fixed reduced couple our

a the rate lot cash. of money just that’s quarter environment, the didn’t securities, really. and are in that put excess we the where in synthetic from we couple said, the on We to it’s at and on moved like That off. and third looks income to for work this it the been portfolio particularly running the point with we’re So, yield weeks, last seeing are mortgage-backs treasuries, of largely

benefit going clear this is there So, forward. from

Ken Usdin

one little balance to Will you on it move the cash to - mortgage turn you this continue to kind that. you Bill, it versus just Yes. point How at And where a just of asset-sensitivity on follow-up to do that synthetic you starting continue to just cycle?. of stand bit? rate

Bill Demchak

asset-sensitive. still We’re

Ken Usdin

For sure.

Bill Demchak

nowhere near them is from synthetic move put lot Swaps done to and trade. value did, unwound here. and We’re we we they so a cash securities. than The more on, offered into those simply value went a

go do if the will back things We that opportunistically. We way change. other

I a that trade. just was value - So

market. going think this forward, investing into I we will be

one and dividends. not bet say going us do on pay thus red in like we’re big patience to but looks to we’ll heard incrementally forever, far in going our it’s You’ve it swoop,

Ken Usdin

Yep.

Okay, you. Thank I understood.

Bill Demchak

Yes.

Operator

you. Thank

of Piper comes Our from go Barker Jaffray. Please with Kevin ahead. next line the question

Kevin Barker

the expect and between Was same just deposits first going of noninterest-bearing consumer of side? business was wanted quarters? to on morning. mentioned remain conversations follow-up some dropped deposit deposit fourth And rate into period-end and that and Good We’ve growth part And you also from I to you customers. shift the to significantly. any seen question. the noninterest-bearing deposit the the the there interest-bearing of change growth do due

Rob Reilly

Rob. your of part first it’s question. To Hey, Kevin, your answer

the on it’s the so to deposits, savings said side, I of as consumer saw on all and from terms earlier, interest-bearing more was time we much anything accounts. migration already the consumer the Firstly, movement a side, but in commercial not side. If

just Going forward, have radical terms I monitor don’t to anything change. see it. a of we’ll in step

Bill Demchak

new that come will in of happen our - over the the we interest-bearing. time thing expansion One digital those is accelerate bulk is form will of do monies

Rob Reilly

that’s Yes, and growth.

Bill Demchak

it’s proportional of but would growth same time. that at we’re noninterest-bearing interest-bearing largely into amount outpace, and bringing not because Yes, the

So it mix to time. our could shift cause over

Rob Reilly

in short-term. not necessarily Over the but time,

Bill Demchak

Yes.

Kevin Barker

Yes.

I about think the liquidity. I already when to digital, mean, shift plenty So have you of

LCR ratio. are You meeting your

can ratio in here - you show much price peers. deposit going to When just down? is digital this going to grow leader I the you at than slow deposit beginning be be mid-XXs, loan better are it running Your in offering, continue and of to most look the are you the a to then your that

Bill Demchak

to alternative compare is alternative to wholesale funding. and have the You the it today

make expensive with pay beneficial we funding. a LCR is of to into what So Even cheaper it’s which wholesale ability us. they if more retail, funding lot some wholesale than our in shift to changes, our LCR, mix

So continue offering. to on we’ll be digital competitive our

cost structure behind We have than no advertising it. real other

margin the is good. So to it actually pretty

Rob Reilly

is there know, you element This to is banking. it. the an big of future as terms And a qualitative of in experiment

the a need So, deposit. versus largely for that

Bill Demchak

dream the account I wallet virtual just the would we’re full-service pleasantly the we a days that. in is account, of My scenario. which open We savings clients, choose be versus been and large the that, have gate so surprised it’s open the percentage and account, frankly that doing people of longer want we and by in choosing is would have to is, high-yield is number these say assumption one a obviously that was digital to in The what a out take early which good going our clients of really Yes. to thing own full-service clients convert thing. who

Kevin Barker

that loan shift? because Do auto consumer to you that see of side, particularly in and starting growth card generate higher the in

Bill Demchak

going out have anomalous which are we to It’s will. figure too are show It’s to guys, you to going metrics we and but early. early, track It’s the to right something too we

Kevin Barker

All right. question. my Thank taking you for

Bill Demchak

Yes.

Operator

Thank you.

Please next comes Our from ahead. question & go Woods. with Keefe, the Brian Bruyette of line Klock

Brian Klock

gentlemen. morning, good Hi,

Bill Demchak

morning. Good

Brian Klock

and that surcharge of some expenses the for little that little bit a But guidance would the expense are having marketing seasonal fourth bit I FDIC quarter? answered the wondering quarter. was if for about the you like I the is that be if give a doing you in fourth a guidance that assuming would for apologize expense talk quarter, on I you fourth Rob, But follow-up the to have you could already. this

Bill Demchak

Yes.

Rob Reilly

Yes.

So not assume in the surcharge in we guidance, amount. our change

expense. So be And that good we not that but that a don’t if guidance. part the would there that’s is the our case, potential it’s thing, of have

Brian Klock

still it’s in be if right? other, way even the settlement… one XXXX, correctly, there’ll sort the So understand for some I not going fourth be there quarter if of And to or it’s

Rob Reilly

That’s expectation. the FDIC

Brian Klock

anything if - And else Right. ahead. you go

Rob Reilly

It’s a disk their hitting fund. the threshold matter of on

Brian Klock

right. That’s

an yet, the quarter if of you’re expense anything, So XXXX know not you but.. guidance normalized expectation giving not are giving level. is fourth a I guidance

Rob Reilly

not we No, giving are guidance.

Brian Klock

…maybe just say it’s a seasonal item.

Rob Reilly

the I aspect not Typically, of marketing actually it’s our in other say quarter. expense in seasonal marketing, declined The thing years that. fourth would past, is, the Brian

we’re quarter of up digital that making. the because going investments This it’s

investment it’s the deliberate. component of that seasonal, not is So

Brian Klock

Okay.

So what the will stays that be digital that is - investment into base will going that I be something different? guess expense forward?

Rob Reilly

year. Well, get we’ll on the into get XXXX we later in when

Brian Klock

All right. helpful. That’s Okay. you. Thank

Operator

you. appears time. questions further there no lines this are that Thank on It the phone at

Bryan Gill

for would this thank quarterly I to you for like call. us Well, joining of Okay. all

Bill Demchak

everybody. Thanks,

Rob Reilly

Thank you.

Operator

conference today. day. disconnect good the thank you your Thank have you, That participation and for ladies you We and conclude and that gentlemen. a Thank does for please your lines. you ask call