Q3 2021 PNC Financial Services Group Inc Earnings Call

October 15, 2021

This conversion are significant collaboration across all divisions is impressive and it gives me great confidence that we'll capitalize on the enormous opportunities ahead of us.

I'm going to turn it over to Rob for a closer look at our results and then we'll take your questions.

Okay.

Thanks, Bill and good morning, everyone.

As Bill just mentioned and notable during the third quarter, we converted the BBVA USA franchise to the P&C platform in less than 11 months following the announcement of the deal.

Pnc's increased scale from this acquisition underscores the opportunity we have with the BBVA USA franchise, we have a proven track record of acquiring attractive strategic opportunities identifying and reducing inherent risks and successfully growing franchises to deliver enhanced shareholder value.

And as Bill just mentioned, we are well on our way to accomplishing this with BBVA USA.

Due to the June one closing of the acquisition our average balance sheet growth for the third quarter reflected the full quarter impact of the acquisition.

As loans grew $36 billion.

Securities increased 12 billion and deposits grew $53 billion.

For comparative purposes for the second quarter, which Youll recall included just one month of BBVA USA results our balance sheet on slide three is presented on a spot basis.

Total spot loans declined $9.0 billion or 2% linked quarter, excluding the impact of PPP forgiveness loans grew and I'll cover the drivers in more detail over the next few slides.

Investment Securities declined approximately $900 million or 1% as we slowed purchase activity throughout much of the quarter during the relatively unattractive rate environment.

Our cash balances at the Federal reserve continued to grow and ended the third quarter at 75 billion.

On the liability side deposit balances were 449 billion at September 30th and declined $4 billion, reflecting the repositioning of certain BBVA USA portfolios.

We ended the quarter with a tangible book value of $176.0 per share and an estimated CET one ratio of 10, 2%.

Both substantially above pro forma levels, we anticipated at the time of the deal announcement.

During the quarter, we returned capital to shareholders with common dividends of $537 million.

And share repurchases of $393 million.

Given our strong capital ratios, we continue to be well positioned with significant capital flexibility going forward.

Slide four shows our loans and more detail.

Average loans increased $36 billion linked quarter to $291 billion, reflecting the full quarter impact of the acquisition.

Taking a closer look at the linked quarter change in our spot balances total loans declined $9.0 billion.

The PNC legacy portfolio, excluding PPP loans grew by $11.0 billion or 2% with growth in both commercial and consumer loans.

PNC legacy commercial loans grew $10.0 billion drip.

Driven by growth within corporate banking and asset based lending.

This growth in balances has been aided by a slight uptick in spot utilization and while still near historic lows utilization did reach its highest level since December 2020.

Growth in P&C as legacy consumer loans linked quarter was driven by higher residential real estate balances.

Within the BBVA USA portfolio loans declined $8.0 billion.

Primarily due to intentional runoff relating to the overlapping exposures in non strategic loans looking.

Looking ahead, we have approximately $5 billion of additional BBVA USA loans that we intend to let roll off over the next few years, which is in line with our acquisition assumptions.

Finally, PPP loans declined $12.0 billion due to forgiveness activity and as of September 30th $14.0 billion of PPP loans remain on our balance sheet.

Yes.

Moving to slide five <unk>.

Average deposits of 454 billion increased $53 billion compared to the second quarter driven by the acquisition.

On the right you can see total period end deposits were 449 billion at September 30th.

Line of $4 billion or 1% linked quarter.

Inside of this PNC legacy deposits increased $9.0 billion.

Deposits continue to grow reflecting the strong liquidity position of our customers.

BBVA USA deposits declined approximately $13.0 billion during the third quarter, which was anticipated as we rationalize the rate paid on certain acquired commercial deposit portfolios and exited several non core deposit related businesses.

Overall, our rate paid on interest bearing deposits is now four basis points, one basis point decline linked quarter.

Slide 50 tails the change in our period end securities and Federal reserve balances and.

And as most of you know we have been disciplined in deploying our excess liquidity with rates at historically low levels.

Back at the beginning of the year as the yield curve steepened, we accelerate accelerated our rate of purchasing activity.

However towards the end of the second quarter, we deliberately slowed our purchases as yields declined.

With the increase in rates at the end of the third quarter, we resumed our increased levels of purchasing including $9.0 billion of forward settling securities, which will be reflected in the fourth quarter <unk>.

Average security balances now represent approximately 24% of interest, earning assets and we still expect to be in the range of approximately 25% to 30% by year end.

As you can see on slide seven our third quarter income statement includes the full quarter impact of the acquisition.

Reported EPS was $33.0

Which included pre tax integration costs of $243 million.

Excluding integration costs adjusted EPS was $78.0

Third quarter revenue was up 11% compared with the second quarter, reflecting the acquisition as well as strong organic fee growth.

Expenses increased $537 million or 18% linked quarter, including $235 million of integration expenses and two additional months of BBVA USA operating expenses.

Legacy P&C expenses increased $76 million or two 7% virtually all of which was driven by higher fee business activity.

Pre tax pre provision earnings excluding integration costs were $10.0 billion.

$25 million or 7%.

The provision recapture of $203 million was primarily driven by improved credit quality and changes in portfolio composition.

And our effective tax rate was 17, 8%.

For the full year, we expect our effective tax rate to be approximately 17%.

As a result total net income was $6.0 billion in the third quarter now, let's discuss the key drivers of this performance in more detail.

Turning to slide eight these charts illustrate our diversified business mix and total revenue of $7.0 billion increased $530 million linked quarter.

Net interest income of $11.0 billion was up $275 million or 11%, reflecting the full quarter benefit of the earning asset balances acquired from BBVA USA.

Side of that interest income on loans increased $277 million or 13%.

While investment Securities income declined 9 million driven.

Driven by elevated premium amortization on the acquired BBVA USA portfolio.

Net interest margin of two 7% was down two basis points, driven primarily by lower security yields.

Importantly in the fourth quarter, we expect premium amortization to decline meaningfully in the yield on securities the yield on the securities portfolio to increase.

Third quarter fee income of $10.0 billion increased $274 million or 17% linked quarter.

BBVA USA contributed fee income of $184 million, an increase of $122 million linked quarter driven by two additional months of operating results.

Legacy P&C fees grew by $152 million linked quarter, or 10% driven by higher corporate service fees related to record M&A advisory activity as well as growth in residential mortgage revenue.

Other noninterest income of $449 million decreased $19 million linked quarter as higher private equity revenue was more than offset by the impact of $169 million negative visa derivative adjustment. This adjustment relates to the extension of the expected timing of litigation resolution.

Turning to slide nine our third quarter expenses were up by $537 million or 18% linked quarter.

The increase was primarily driven by the impact of higher BBVA usa's expenses of $327 million and higher integration expenses of $134 million.

PNC legacy expenses increased $76 million or two 7% due to higher incentive compensation commensurate with the strong performance in our fee businesses.

Including a record quarter and M&A advisory fees our efficiency.

Fee ratio adjusted for integration costs was 64%.

Yeah.

Obviously with the acquisition our expense base is now higher but nevertheless, we remain disciplined around our expense management and as we stated previously we have a goal to reduce pnc's standalone expenses by $300 million in 2021 through our continuous improvement program and we're on track to achieve our full year target.

Additionally, we're confident we'll realize the full $900 million in net expense savings off of our forecast of BBVA USA 2022 expense base and expect virtually all of the actions that drive the $900 million of savings to be completed by the end of 2021.

We still expect to incur integration costs of approximately $980 million related to the acquisition.

Since the announcement of the acquisition, we've incurred approximately half of these integration costs.

And as Bill mentioned, we appreciate all the hard work our teammates have done to keep us on track and to achieve these goals.

Our credit metrics are presented on slide 10, and reflects strong credit performance.

Nonperforming loans of $7.0 billion decreased $251 million or 9% compared to June 30th and continue to represent less than 1% of total loans.

Total delinquent fees of $5.0 billion at September 30th increased $106 million or 8%.

However, this increase includes approximately $75 million of operational delays.

And early stage delinquencies, primarily related to BBVA USA acquired loans.

Subsequent to quarter end all of these operational delinquencies have been or are in the process of being resolved. Excluding these total delinquencies would have increased $31 million or 2%.

Net charge offs for loans and leases were $81 million, a decline of $225 million linked quarter.

The second quarter included $248 million of charge offs related to BBVA USA models.

Mostly the result of required purchase accounting of treatment for the acquisition.

Our annualized net charge off loans in the third quarter was 11 basis points.

During the third quarter, our allowance for credit losses declined $374 million.

Primarily driven by improvement in credit quality as well as changes in portfolio composition.

At quarter end, our reserves were $6 billion, representing 2.02, 0.07% of loans.

In summary, PNC reported a strong third quarter and notably earlier this week converted the BBVA USA franchise.

With this step completed we expect to add significant value to our shareholders as we continue to realize the potential of the combined company.

In regard to our view of the overall economy after somewhat slower growth during the third quarter of 2021 due in part to the Delta variant and supply chain problems, we expect GDP to accelerate to above 6% annualized in the fourth quarter. We also expect the fed funds rate to remain near zero for the remainder of the year.

Looking at the fourth quarter of 2021 compared to the recent third quarter results.

We expect average loan balances, excluding PPP to be up modestly.

We expect NII to be up modestly.

On a percentage basis, we expect fee income to be down between 3% and 5%, mostly reflecting the elevated third quarter M&A activity.

We expect other noninterest income to be between $800 million, excluding net securities and visa activity.

On a per se. So we expect total noninterest expense to be down between 3% and 5% excluding integration expense, which we approximate to be $450 million during the fourth quarter.

We expect fourth quarter net charge offs to be between 101 hundred $50 million.

And with that Bill and I are ready to take your questions.

Yes.

Thank you at this time, if you'd like to ask a question. Please press the number one followed by the number four on your telephone keypad.

Please hold while we compile the Q&A roster.

Your first question comes from the line of Dave, Georgia with Baird. Please go ahead with your question.

Hey, guys. Good morning, I had a question.

Good morning, Rob on loans, So you saw them.

On the BBVA Theres, an additional $5 billion.

Declines to come can you kind of give us with respect to the timing and how you see that.

Portfolio running off and then I've got a follow up.

Oh sure Yeah again, good morning, Dave.

So of the 5 billion that we've identified going forward that we intend to write off too.

$2 billion that we expect to run off in the fourth quarter and Thats part of our guidance the remainder likely over the next couple of years.

Great Thanks for that.

Sure in terms of kind of the legacy PNC C&I businesses, obviously, it was encouraging to see a little bit of kind of organic growth.

In the third quarter can you give us a sense and this may be difficult, but clearly supply chain is weighing on working capital needs and I'm curious if you can contrast.

The growth in commitments relative to the growth in Outstandings in commercial and just kind of curious.

How the commercial business is doing with respect to adding new names and new commitments on but we're obviously not seeing the benefit of that at least today in terms of outstandings because of that inventory issue.

Yes.

It's bill we've been for the last couple of quarters, our new money commitments have been I think maybe at record levels, Rob, but increasing each quarter.

And so new business new clients in some cases, just upsizing, what we already had.

In the quarter.

We had a little bit in utilization, but most of this was kind of a new client growth.

Yeah, that's right right.

And then as you know like we had mentioned utilization ticked up a little bit still at historic lows, but a little bit and that was part of it too.

It sounds good guys. Thanks.

Sure.

Thank you. Our next question is from the line of.

John <unk> from Evercore ISI. Please go ahead.

Good morning.

Good morning, John Jeff.

On your on the loan growth topic.

Pick up in utilization and then also the new clients that you mentioned could you give us a little more detail on what areas.

Missouri's, which industries, but you're starting to see that.

The momentum starts to build.

Yeah, they're kind of related I mean, the growth in our secured lending areas.

Sort of stood out and they traditionally have higher utilization. So in some ways. It was an increase in the overall average because we grew the book with the highest.

Individual average rate.

But even in the straight middle market corporate book finally, stabilizing I guess went up a couple of basis points, there just a little bit.

Yes, so basically business credit our asset base lending group and corporate banking.

Got it Okay and then on the expense side just wanted to see if you could talk a little bit about.

Wage inflation that youre, starting to see any signs of that in your in your franchise and also if so is there any risks or how we're thinking about the <unk>.

Merger costs or the $900 million in cost saves.

With.

The wage inflation, you might've seen an announcement that we we increased our base rate to it.

<unk>.

And a and B.

Beyond that in some cases.

Certain markets.

So about $80 an hour, yes, sorry, and it's.

So that is real but that.

That was kind of already assumed in our financial assumptions. It doesn't have anything to do with our assumed cost saves.

But there's real pressure there and the only way through time to kind of offset the pressures through increased automation and use.

Frankly controlling overall head count.

Okay. So fair to say, though longer term impact on how you view the long term efficiency ratio for the bank.

Too early to tell right. We're on this.

So <unk>.

Average wages per employee you're going to go up.

At issue is how quickly we how we scale our franchise through automation, so we become larger.

Without more employees.

And that's played out for a period of time here John If you just go through our financial statements, even going back for five years.

We just need to continue that trend the trend to be able to continue.

Continue our pursuit on positive operating leverage and to offset what is real in terms of wage pressure.

Got it alright, thank you.

Thank you. Our next question is from the line of Scott <unk> with Piper Sandler. Please go ahead.

Good morning, guys. Thanks for taking the question.

Rob I was hoping to drill into the expense dynamics are a little more so your fees.

She is excellent this quarter those will come down but still appear to remain very strong as it relates to the kind of the related cost outlook. How much of your expense guide contemplates sort of ongoing costs related to that that strong fee momentum and then can you maybe.

Size up how the 900 million in BBVA related cost savings sit into the fourth quarter guidance in other words, how much starts to come next quarter, where it comes next quarter and then how much is into 2022 stuff.

Sure.

That's a lot there Scott, but they are the easy answer to that is that's all in that's all in the guidance.

For the fourth quarter so.

We to your point fee businesses had been there were good in the third quarter they've been good all year.

Across the board asset management, and consumer services corporate services, particularly in the third quarter as well as residential mortgage and with the exception of the elevated levels of M&A activity and corporate services, we see all of that continuing into the fourth quarter and Thats part of the guide so there'll be expenses that are obviously associated with that.

In terms of the 900 million.

In savings.

We are achieving savings.

<unk>, we got some in the third quarter, we'll get some more in the fourth quarter. That's part of the guide, but the bulk of the savings will be in 2022, so reaffirming the $900 million in savings.

Portion of which will recognize in 2021, and then of course going forward into 2022, all in our guidance.

Perfect. Thank you and then you touched on this in your prepared remarks, but that elevated premium amortization at BBVA. The weight on the consolidated Companys securities portfolio yield can you can you just expand upon that a little please.

Sure It was painful.

Yeah.

In its simplest form we marked that securities book, when we close the deal June 1st Yeah.

Really low rates that then continued through in fact rallied through the quarter. So the prepay rates on their Cmo's increase and we had so you think about it we market book so whatever the yield was at a premium all of that.

Prepays because of the low rates hopefully.

We expect that to abate as rates have kind of gone back up.

Yeah.

We marked them as premium Securities and then got caught by the and it was a function of the timing of the acquisition setting.

Setting up those securities as premiums and.

In its simplest form what we did if you think about it is it knocked down goodwill.

When we Mark the book, because we had a higher valued asset.

So it took effect took in income upfront.

Paid for at a little bit this quarter that's right.

Let me throw out there.

The securities yield once you can take the guide on the like the book yield of 50 basis points or something that happens yeah. Yeah.

We expect going forward the total book.

Increase that's right, which is what I said in my head it in my comments, that's right yes.

Yes, I'm glad that's behind Us and it is it is acquisition related and it was paying looking backwards.

Alright, perfect I appreciate the color.

Yeah.

Thank you. Our next question is from the line of Betsy <unk> with Morgan Stanley. Please go ahead with your question.

Hey, good morning.

Good morning Betsy.

Hey, I know, we've had a lot of expense discussions already but I'm just looking at what you've done so far in the quarter you know when I look at your detail around.

The run rate of expenses at BVA and <unk>.

<unk> the one month thing or that you had and the three months three four months he hadn't <unk> already it looks like you've brought down expenses a bit and I'm just trying to understand what you've done so far and.

And what's left from here because you've already executed.

A bit it seems right I might miss.

Thanks.

But no no youre right Youre right, Hey, Betsy this is Rob but right now we started as we said we would so we have begun to realize expense savings, yes pretty much across all the categories.

But we're just getting started so what you see in that state.

We still have work to go.

Okay, and then when I'm thinking about.

The pace of that expense save from here or a part of it's a function of the conversion of lift and shift obviously, but can you talk us through what comes after the lift and shift.

In terms of expenses trajectory.

I don't know that we're talking about.

When you talk about the activities and then I can get a lot of line items. So I mean, we know like the branch closures and you know what the right and really the question is there was a level of a task.

All of it some of its branch closures some of it will be in the form of people who have stayed with us through conversion on stay bonuses.

There'll be shutdown of systems and vendor contracts and all sorts of different things that will roll through dependent on time, some of which we leave around for a bit sort of backup for.

Notwithstanding the fact, we've converted will leave some stuff up and running for a little bit of time, just in case, I think that's right and probably at.

At least in terms of the pick up in the fourth quarter activity, we will at.

At the mix, we will pick up more vendor savings, we've already started that and we'll pick it will start to pick those up at an accelerated rate.

Yeah, and I guess the question really is lift and shift as a percentage of total cost saves.

It's like round gifts.

That's the wrong way to think about it but the fact that we get that done at one point in time allows us to then aggressively move costs.

Right, because that's because legacy systems shut down legacy vendor shut down related people, who were supporting applications all of that stuff now starts rolling through the system.

Yeah, Yeah, and my point is it's not you know the one and done it's it's a portion of the total.

Expense save that you'll be generating.

Yeah.

Look at the end of the day the guidance is the guidance right.

We're going to we're going to get some more in the fourth quarter and then we're gonna get at all next year and I would just say we're on track we will get it all we know the line items, where it will come from.

I think I think the way to think about that is its sequential so the conversion and the lift and shift clears the deck. So to split to get started sooner rather than later unrealized and those savings got.

Got it alright, thank you.

Sure.

Thank you. Our next question is from the line of Gerard Cassidy with RBC. Please go ahead.

Good morning, Bill Good morning, Rob.

Hey, Gerard.

Can you guys share with US you mentioned, a few times and within the corporate services numbers that the advisory business. I think you said in the press release it was at record levels, but you're it's Rob in your guidance you expect it to come down other than the obvious pipeline that you guys see in your book can you share with us.

What else you guys on the front lines are seeing about M&A.

<unk>.

There's just not as much.

As many companies that are left to do M&A and going into 'twenty two.

Looking at it in its simplest form you set a record you assume you won't keep setting records theres nothing out there that suggests necessarily.

Weaken from here.

But by the way inside of that we obviously we have.

Harris Williams, but we also had breakout quarters for sole Barry and six point and related advisors yeah.

And if the market continues that we'll continue to have great fee income out of it but.

It's hard to say, we're going to budget a record upon a record.

It's as simple as that that's right.

Got it and what does it represent now a corporate services or what did it represent in the third quarter.

Well, yeah and I I.

I know that the let's say I'll do the quick math in my head down 25%.

Yes got it.

Okay, and then a question on the loan to deposit ratio you and your peers of course incredible amounts of liquidity and that ratio has come down we've looks like the fed now is going to enter into a tapering phase and clearly there's still be adding to the deposits in the banking system until.

Tapering is over how are you. How are you guys looking at and I know, there's a lot of moving parts with loan growth and maybe some deposit shrinkage, but when you look out over the end of 'twenty two and in just 23 BBVA is fully integrated what do you think is an optimal loan to deposit ratio for you folks and when do you think you could get there.

There's too many variables.

Yeah, Okay, I mean thats it.

If you go back in history right people would would operate you know I don't know, where we were at 85% or 85 to 85 to 90.

And that was kind of a a liquidity safety function. So so if you were short liquidity at that point you'd you'd raise wholesale liquidity to kind of keep your ratio at that point.

Today, we're so flush with reserves into the system wholesale funding.

Next to zero.

And until the fed forget about tapering actually shrinks its balance sheet.

That's not going to change now loan growth, even accelerated an exaggerated loan growth will absorb some of that but I think youre going to St loan to deposit ratios low for a long period of time and therefore.

I think youre going to see security balances as a percentage of our balance sheet and we've already talked about this increase.

Across across the industry.

That's going to.

I think it's going to take years to play out.

Very good I appreciate the color. Thank you.

Thank you.

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

Hi.

Hi, Mike good deed.

No good deed goes unpunished.

So since you from announcement to conversion.

11 months, probably a record why aren't you increasing your $900 million cost savings.

But more generally.

Having completed the lift and shift conversion over the weekend.

What parts of your technology.

Do you think are further validated whether it's your use of the cloud or data lakes or something digital that youre doing that you think others have in advance as far as you have.

Well look with the first question.

<unk>.

At the end of the day, we're always in the business of figuring out how to become more efficient I think of the 900 is line items. We know we can get.

We actually know where they're coming from and when Theyre going to show up.

So youre right at the margin, we'll find some other stuff by the way, we'll probably find some stuff we need to invest it to so we just we put that into our guidance. We say look we'll get the 900, we will talk to you about 'twenty two when we get closer but we haven't lost focus on the primary objective and the 900, you know that the 900.

Was estimated off.

The expectation that we would convert and when we did so we didn't convert sooner than we thought we did it on time, so, but that's but that was a number that.

I don't know how to say this visual two we can see it like we know the line items, it's very precise.

The technology.

Look it worked.

You know we had at the margin some.

Confusion with retail clients on password resets and some other things, but the basic technology moving it overturned it on it all worked.

Phenomenal effort by our team and validates the investment we've made over the years.

I don't know what people have or don't have in terms of their ability to do that but you know the biggest element for us Mike and I think we've talked to you about this was wasn't effect. This data lake idea where since our applications.

Don't hold their own data they call from a central Lake.

And they are linked through API and their cloud native it. It just makes it very easy to move data and you onboard a new client it's not much different than if we just.

Got it.

A couple of million new clients overnight.

That debt.

I'll make it sound very easy and all my technologists rip in their home.

But that's what that's what we did and it worked.

You know the investment and that was everything from the data lake to cloud native to API and everything.

And frankly to having businesses in technology.

So technology at PNC is not in the back office somewhere doing his job, they're actually side by side and agile teams working with their business partners to develop product and importantly to execute the conversion, which we did.

Know that.

Cultural element is probably as important or more important than all the rest.

So I was just in the final look at this.

Uh huh.

How many apps did you eventually.

Keep from them or how much in gigabytes to add or this one more time, what you added.

Well, we ended I think we ended up keeping tour or something and when we went to last number one.

One was the.

Business transfer.

Uh huh.

Personal foreign currency transfer business.

I don't know what the other one was.

And that's kind of it.

And that was and I would just finish I have the numbers right was that out of 600, and you have 300 or something like that.

I mean, you did not see as much.

We went through that before and I can't remember off the top of my head, but they had twice the number that we have at Gmail is three.

Roughly 600, they had more than 600, they had 600 and we run the whole bank on 300, a little more than 300, a little more.

Why is my was that I mean, that's the number that stands out there is so much smaller they had twice as many apps.

I don't know that state yeah, I mean I think.

Once you start.

Using API based programs, it's almost kind of a click and drag right. You don't have to recreate functionality across multiple applications you can simply bring in whatever functionality you need from a library of API.

So, let's see how an application that just needs a checking account balance rather than you.

You're right a full application that goes and finds a checking account balance off your core ledger, we just have an API.

New Dragon.

Produce it.

I think that's a big part of it it's also.

Credit to the team way back when we did national City, we moved everything onto a single applications right a lot of times with BBVA might've done this.

You know Youll do an acquisition you just keep too many applications alive, because you don't want to choose between one or between the two of them.

Got it alright, thank you.

Yeah.

Thank you.

Our next question is from the line of John Mcdonald with Autonomous Research. Please go ahead with your question.

Hi, good morning, guys.

PPP the PPP dynamics are confusing to all of us and.

Just wanted to ask a little bit about that so.

So Rob on the outlook I think it is helpful that you give the core loan growth and it excludes PPP, but maybe you could give us a sense of what you expect for PPP payoffs in the fourth quarter and then beyond and then also on the NII is P. P. P included in that and what kind of PPP contribution have you had to NII.

Hi.

This quarter, what does that what happened to that going forward, yes, yes.

In simple terms, John and you're right it is confusing but <unk>.

Simply put we expect PPP to be down on average about $4 billion in the fourth quarter.

In the third quarter and net interest income contribution from PPP was about $100 million.

And we expect that to go down approximately 25 to 30.

And that is in our guidance our NII guidance.

Yep, Okay Gotcha.

Great another.

Cleanup question here on the securities redeployment of cash into securities, 25% to 30% the target for this year.

Overtime and this gets into the discussion that you had with withdraw it about loan to deposits, but could that go higher overtime, if loan growth doesn't surface as much as we think.

I think it could I think that depends.

<unk> set.

Where the yield curve is in.

How do we think about long term risks I mean part of the issue today. John is you have this.

Long tail risk, maybe it's not such a long tail, but you end up with a spike in long rates because inflation becomes real.

Which causes you with the margin to be slower than you otherwise might be in deploying that cash I think is that risk normalizes. If we don't see loan growth youll see balances increase.

Got it okay. Thanks, guys.

Sure.

Thank you.

Our next question is from the line of Bill <unk> with Wolfe Research. Please go ahead with your question.

Thank you good morning, Bill and Rob.

Good morning following up.

Following up on Gerard question as we look ahead since then tapering and eventually rate hikes, how are you thinking about.

Deposit betas relative to when we exited the last cycle.

You know I think theyre going to be a lot lower simply because theres. So much cash sloshing around remember even when the fed tapers.

They're not necessarily shrinking.

And so with the cash in the system the competition for.

Deposits just won't be as great as it once was so I think of the margin they've got to be lower.

And another way of answering that with all the deposits. We have we're not thinking a lot about betas right.

Right Yeah.

Yeah.

That makes sense.

That's helpful.

And I guess going back to the momentum youre seeing in new money commitments, what's your sense from your discussions with your customers.

To which utilization rates are going to remain relatively depressed as long as the supply chain problems.

No we're seeing remain unresolved versus the potential for continued improvement even if the supply chain problems were to extend well into next year say.

Just trying to get a feel for how big that how much of an impact.

It varies across industries.

Hey.

I shouldn't say without question, but the vast majority of our clients talk about the need and desire to build inventory and do more capex, which is why some of the lines have been increasing.

Their ability to execute on that is somewhat dependent on supply chain and it depends it depends what industry you're in if you're if you're dependent on <unk>.

Chips for your manufacturer, it's a struggle.

Other businesses, you know or not and can build immediately and maybe we're already seeing the benefit of that.

Got it.

Hum.

Switch to BBVA and the revenue synergy opportunities when you think about those how do you how does your confidence level around the timing and magnitude.

Realizing those differ relative to what you saw in RBC.

Like you guys have the playbook, but just trying to get a sense for differences that you may see in execution. This time around.

Yeah, Hey, Bill it's Rob.

Uh huh.

In terms of contracting with RBC just set that aside in terms of the BBVA. We're very confident in terms of the numbers as bill mentioned that we've laid out in the plans to get there.

It's probably it's probably on the increment better than RBC, just because it's bigger we know what we do it's very familiar.

Of course RBC was successful, but this is I mean.

This is more of a magnitude.

My clients, who runs the C&I business would say, it's as much as.

Perhaps a year faster and he gets there largely because the teams are in place much faster than we had them in place with RBC. So we'll see how that plays out, but but we're hitting the ground faster in terms of teams who are out calling on clients and then we also have a book of business.

With BBVA that is better than what we had with RBC. So it has the ability to upsell that book of business.

On the fee side, you'll remember I was talking about just the percentage of fees to total revenue being very low. So we have an opportunity for fee momentum early on we have teams in place and we ought to be able to grow clients a little bit faster than what we saw in RBC just because we're on the ground already.

That's the that's the revenue aspect of it because the revenue aspect of it is significantly higher than.

RBC at the expense side I thought it was the question.

The magnitude that I mentioned it is the answer.

Understood. That's really helpful. If I could squeeze in one last quick one bill you've talked about having teams inside of P&C studying crypto and I'd love to hear your thoughts on a couple of areas first is there a revenue opportunity for P&C.

You've taken a closer look at it and then second from a risk perspective, how concerned are you about the risk of disruption.

From a decentralized finance.

So what we've talked about or what we are.

Contemplating offering.

We literally have built today.

To our clients and look our clients are interested in it as an ability for them to trade crypto in a safe fashion through.

Mobile app at PNC.

Don't have to opine on whether I think that's a good investment or not a bad investment.

Know with certainty that we have.

10% to 15% of our clients, who are moving money into into and out of crypto exchanges. So they're interested in it and our survey confirmed that.

The financial disruption of crypto broadly and probably inside of that stable coin.

Real threat.

And it depends on how the play.

Raise out through time, there is the risk I think that people are aware of with.

Certain of the stable coins, having let's call it suspicious collateral behind them.

But there is also the risk through time.

A substantial portion of savings other domestic savings or even emerging markets savings.

<unk> get absorbed into a stable coin in and out of the traditional money transmission system and that would affect the economy and the ability to control the money supply long term and I think that's what.

I know that's what the various regulatory bodies are looking at to figure out how to get their arms around.

But that that's independent of whether we let our clients trade bid correct right.

Yeah.

As the revenue opportunity from that portion of it even.

Quite simply just providing the service to them.

So that is that a fair conclusion.

Sure I mean at the margin.

But at the margin don't see it as a big driver.

Right right I got it.

That's super helpful. Thank you again for taking my questions.

Sure.

Thank you.

Our next question is from the line of Ken Houston with Jefferies. Please go ahead.

Hey, Thanks, good morning, guys.

Can I come back Rob on the.

Premium amortization question I'm, just wondering if you can help us understand in the one for 504 securities yield, but what either the basis point impact was or if you even have a total dollars of premium am for the company and what do you expect that to look like going forward.

That's all that's all in our guidance in terms of the dollar amounts.

But I'd say I'd say, if you take a look at it in terms of the yields you can see the decline in yields if it wasn't for the elevated premium amortization expense, we would be close to down a little bit from the second quarter levels.

Okay. That's fair and that was my second question is what are you seeing just on core front book back book relative to these forward settling in.

Just what youre seeing in the market today, and where you can get your hands on.

Well, it's looking better is what we said relative to the yields were buying today, but we expect the yield on the total book to increase pretty substantially next quarter largely because of it.

Increase in the AR.

And the amortization that's right.

And then lastly, just purchase accounting accretion you said it was 30 in the second quarter do you have anything in the third and how do you expect that to look like two demand de Minimis de minimis.

In the third and going into the fourth quarter, which is a good thing.

Yep, Okay, great. Thanks.

Thank you. Our next question is from the line of Terry Mcevoy with Stephens. Please go ahead.

Thanks, Good morning.

Bill you mentioned it at an industry event last month that California was an underperforming franchise I believe at legacy BBVA U S. What are your thoughts on turning that around is it is it build is it by or is it just internally worked to improve the franchise.

Yes.

It's it's it's building it I mean it was underperforming.

<unk>.

Largely because they didn't have the products and services to cover the corporate opportunity that's in California and by the way that opportunity is massive.

So.

The big effort for Us and we're fairly law, we're fairly far along in the process is to get feet on the ground.

On the corporate side, who can cover clients in some cases bring relationships with them. So.

We don't need to buy anything.

You know at the margin.

We might rearrange some of the branches, there, but but the real opportunity set in California's to get corporate bankers and TM coverage and capital markets players on the ground in California, which in many instances we've done already right now yeah.

Thanks, and then just as a follow up question could you maybe talk about the rollout of low cash mode is that allowing you to play more offense or is that more defense and then as that was the 125 to $51.0 The decline in overdraft fees is that still the right way to think about the impact of of that product on fees.

Thank you.

Okay.

So the rollout has been.

Somewhat seamless and of course, we just the conversion of BBVA, we put all of their customers are enabled that low cash mode on all other products who converted over.

Yeah.

I forget the current stats, but it's millions and millions and millions of alerts that have gone out its millions of.

People, who have been able to.

You know transfer money before they get hit with a charge.

It's people being able to choose the order it which.

You want to pay a bill and return items with no return fee.

And look we in some ways, we've kind of lead the industry into this discussion and you've seen how people have reacted.

Part of our lead was in what we charge customers, but a big part of our lead.

It was on technology and simply empowering customers and most everyone who has followed us kind of doing it through brute force and just cutting fees as opposed to offering different solutions, which is the most important thing about low cash mode I think.

No. So we're happy with what it's what it's doing.

Knocked our complaint volume into the care Center.

Down by I don't know what.

The numbers on overdraft over 50%.

Yeah on overdraft, even higher than that.

So it's done exactly what we thought it would do.

Great. Thank you.

Thank you.

Our next question is from the line of Matt O'connor with Deutsche Bank. Please go ahead.

Hi, good morning, it seems like the loan portfolio at BBVA USA it'll be mostly.

Deep restaurant run off by the end of <unk>, We're just a couple of billion left.

Like is there an opportunity to kind of fill that bucket.

Relatively quickly I guess, what I'm getting at is maybe you can take down bigger holds because you're a bigger company.

Legacy PNC or just some low hanging fruit.

Two.

So some of that loan run off between this quarter on Max.

It's embedded in our guidance I mean, you got to appreciate that we're not.

If loans are up or down by $1 billion in a quarter and we're not going to a party over.

The organic result by by doing something we otherwise wouldn't do it'll it'll fall its ordinary flow will grow clients. We are a larger company. So we can take.

Larger holds if we want to utilization will hopefully go up some.

And as we always do we're sensitive to risk and they they have some books of business that.

Yeah.

Sure.

Both in some cases riskier than we'd like to be in and in other cases. They just have no cross sell opportunity and so the return on the equity to deploy to hold those loans, it's just really low.

But I would add Matt I mean, obviously central premises acquisition. These are growth markets. So we would expect through time to generate above average growth.

Not necessarily in the next 90 days.

But.

That's obviously a big opportunity for us.

Okay, Yeah, and I wasn't so much looking for just the fourth quarter or I guess, almost all thinking like the next few quarters do you get outsized loan growth given.

Yes.

If we get a tailwind at all you're you're definitely going to see that and I think.

Most importantly, if you go back and look at our loan growth through the period of RBC, So kind of.

Two plus years. After we did RBC, we started to really accelerate in the corporate loan growth I never said, how are you doing that and its all new customers and new markets and we fully expect that we're going to be able to do that in all of these new markets that we just developed admittedly with some noise in the front because we're going to run off.

A little bit out.

BBVA in an outright loan growth as we've seen fairly tepid.

A moment.

Okay. Thank you.

Thank you.

As a reminder to register for a question. Please press the one followed by the four on your telephone keypad.

Our next question is a follow up from Gerard Cassidy from RBC. Please go ahead.

Hi, thank.

Thank you for taking the follow up question Phil.

You guys mentioned about raising the entry living wage or minimum wage for your folks. Some of your peers have done the same excuse me bank of Montreal raised their wages, 20% last week and Bank of America has got the 50 program. So the question is this can you share with us what it means for the people right.

The entry level.

Excuse me in the entry level worker, meaning like a branch manager how far up does that ripple.

So in terms of the inflation on wages because of the minimum wage going up.

It goes straight up through the pay grades I mean, most of the cost is actually in the compression.

As opposed to the initial jump for the people who are at the lowest level. So.

Part of the work set to go through it is to figure out in fact, how you.

Move people up who are.

Today at 18, but.

Tomorrow.

If the $15 person went to 18 to $18 person goes to 2050, or so and I'm, making up numbers here, but that's that's the majority of that cost and by the way. It's the majority of that works out to get right.

Good Okay no I appreciate it thank you.

Yeah.

Thank you. Our next question is a follow up from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi, could you put a ribbon around your expectations for loan growth.

You know that seem to be like the big question going into the quarter and in the past you mentioned over half of your commercial clients are private companies, which don't have the same access to capital markets and therefore, they might come back come back first so just one final thought on loan growth. When do we think you think we get the you know the big burst.

Loan growth is it a quarter away is it three quarters away is it a year away, but what do you think and why.

Well, Mike I think you asked me this nine months ago.

Yeah.

I said I can wish and hope for it but I'm not sure I can predict that any better than the next guy what were seen.

For the first time right.

Is not just the new money going out the door, which we've been growing clients and growing committed money.

But we're starting to see that move in utilization.

That is.

Foreshadow foreshadowing what happens into the fourth quarter into next year, then we're going to have really accelerated loan growth.

If we bounce around where we are then it's going to be somewhat muted and by the way that's kind of what you see in our guidance.

It's kind of.

It's kind of it's kind of you're asking me to go out and say hey supply chain is gonna be fixed and loan growth is going to rip.

Given that and I hope it does.

But you know I'm not the expert to answer that.

Okay, well, maybe just specific numbers and the utilization a little bit more of your tenants at the highest level.

Since the early last year, or so, but what's a normal level of utilization what was the level of and where is it now.

It's still what 15 points. If you go who are at 49 ish and limit of $109.0

Sort of normalization, yeah, so or at least 10 points off and were probably 15.20 points off the peak in March of last year.

So I mean, there's a lot of there's a lot of room here yeah.

Yeah.

Alright. Thank you there are no further questions.

Alright, well. Thank you everybody I look forward to talking to you in the fourth quarter. Thanks. Thank you.

This concludes today's conference call you may now disconnect.

Okay.

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[music].

Good morning, My name is Jennifer and I'll be your conference operator today.

At this time I'd like to welcome everyone to the PNC banks third quarter 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.

If you'd like to ask a question. During this time simply press the number one followed by the number four on your telephone keypad.

If you'd like to withdraw your question. Please press the one and then the number three on your telephone keypad.

As a reminder, this call is being recorded.

I will now turn the call over to the director of Investor Relations, Mr. Bryan Gill Sir.

Sir Please go ahead.

Well, thank you Jennifer and good morning, everyone. Welcome to today's conference call for the PNC Financial services group.

Participating on this call are Pnc's, chairman, President and CEO, Bill Demchak, and Rob Reilly Executive Vice President and CFO.

Today's prison presentation contains forward looking information cautionary statements about this information as well as reconciliations of non-GAAP measures are included in today's earnings release materials as well as our SEC filings and other investor materials.

These materials are all available on our corporate website, PNC dot com under Investor Relations.

These statements speak only as of October 15th 2021, and PNC undertakes no obligation to update them now I'd like to turn the call over to Bill.

Thanks, Brian.

Everybody I imagine you have seen that earlier. This week, we completed our conversion of BBVA USA and I got to say I'm really.

Proud of the team and our ability to sign close and convert $100 billion banking institution.

A year and the dedication of our employees and our sustained investments in technology allowed us to convert roughly 9000 employees 2.6 million customers, a nearer and nearly 600 branches across seven states may.

<unk> USA is now integrated into PNC and its customers can bank with us from coast to coast, we're bringing our technology talent and a full suite of best in class products and services to 29 of the nation's 30 largest markets with attractive growth opportunities as you've heard me talk about for years to come.

Now, while we still have some more work to do which is to be expected for a bank conversion of this size, we're making solid progress with our staffing levels.

And the branch operations in BBVA USA legacy markets. In addition, we're encouraged to see the teams build pipelines.

Importantly, growing new clients.

That was BBVA legacy employees now on P&C systems, we believe our momentum is going to continue to accelerate as we previously were following the same game plan that we've used in previous acquisitions.

Know what to do we just have to execute on it.

With respect to our third quarter results, we had a solid quarter highlighted by strong revenue growth, which included record fee income in our PNC legacy businesses and continued improvements in credit quality similar to last quarter and pretty much as expected. We had a lot of moving parts in our reported results and of course, Rob will take you through those in a few minutes.

Loan growth continues to be impacted by supply chain issues and the continued run off of PPP loans.

And also the strategic repositioning of the BBVA portfolio, So which is consistent with our acquisition projections.

That said total P&C legacy loans, if we back out the P. P. P round off actually grew.

<unk> 5 billion with growth in both commercial and consumer categories and while the environment is still challenging we were actually pretty Kurt encouraged by what we're seeing on the corporate side with spot utilization rates stabilizing and even rising a little on the back of strong new originations in our secured lending and corporate banking businesses and on the consumer side.

We're also seeing promising origination activity, particularly in the residential real estate business.

Importantly, and as you see our balance sheet remains very strong and we're well positioned with substantial capital and liquidity to continue to support our expanding customer base, while making strategic investments in our technology and businesses.

Another exciting development. This quarter was the announcement of our integration with a clear data access network. This is through an application programming interface, but the integration is going to allow millions of our customers. If they choose to do so to safely share their financial information with.

With Fintech and data Aggregators are it's an important step in our efforts to help our customers protect their data while also giving them the choice to share their data with third party applications.

The low cash flow of this integration positions us as a leader in technology and innovation and enables us to best serve our customers.

And I'd like to close just by thanking our employees throughout the newly combined franchise for all their hard work, which enabled this conversion are significant collaboration across all divisions is impressive and it gives me great confidence that we'll capitalize on the enormous opportunities ahead of us.

That I'm going to turn it over to Rob for a closer look at our results and then we'll take your questions.

Yeah.

Thanks, Bill and good morning, everyone as.

As Bill just mentioned and notable during the third quarter, we converted the BBVA USA franchise to the P&C platform in less than 11 months following the announcement of the deal.

Pmt's increased scale from this acquisition underscores the opportunity we have with the BBVA USA franchise, we have a proven track record of acquiring attractive strategic opportunities identifying and reducing inherent risks and successfully growing franchises to deliver enhanced shareholder value.

And as Bill just mentioned, we're well on our way to accomplishing this with BBVA USA.

Due to the June one closing of the acquisition our average balance sheet growth for the third quarter reflected the full quarter impact of the acquisition as loans grew at $36 billion Securities increased $12 billion and deposits grew $53 billion.

For comparative purposes for the second quarter, which Youll recall included just one month of BBVA USA results our balance sheet on slide three is presented on a spot basis.

Total spot loans declined $9.0 billion or 2% linked quarter, excluding the impact of PPP forgiveness loans grew and I'll cover the drivers in more detail over the next few slides.

Investment Securities declined approximately $900 million or 1% as we slowed purchase activity throughout much of the quarter during the relatively unattractive rate environment.

Our cash balances at the Federal reserve continued to grow and ended the third quarter at $75 billion.

On the liability side deposit balances were $449 billion at September 30th and declined $4 billion, reflecting the repositioning of certain BBVA USA portfolios.

We ended the quarter with a tangible book value of $176.0 per share and an estimated CET one ratio of 10, 2%.

Both substantially above the pro forma levels, we anticipated at the time of the deal announcement.

During the quarter, we returned capital to shareholders with common dividends of $537 million.

And share repurchases of $393 million.

Given our strong capital ratios, we continue to be well positioned with significant capital flexibility going forward.

Slide four shows our loans in more detail.

Average loans increased $36 billion linked quarter to $291 billion, reflecting the full quarter impact of the acquisition.

Taking a closer look at the linked quarter change in our spot balances total loans declined $9.0 billion.

The PNC legacy portfolio, excluding PPP loans grew by $11.0 billion or 2% with growth in both commercial and consumer loans.

PNC legacy commercial loans grew $10.0 billion, driven by growth within corporate banking and asset based lending.

This growth in balances has been aided by a slight uptick in spot utilization and while still near historic lows utilization did reach its highest level since December 2020.

Growth in PMT legacy consumer loans linked quarter was driven by higher residential real estate balances.

Within the BBVA USA portfolio loans declined $8.0 billion, primarily due to intentional runoff relating to the overlapping exposures in non strategic loans looking.

Looking ahead, we have approximately $5 billion of additional BBVA USA loans that we intend to let roll off over the next few years, which is in line with our acquisition assumptions.

Finally, the PPP loans declined $12.0 billion due to forgiveness activity and as of September 30th $14.0 billion of PPP loans remain on our balance sheet.

Yeah.

Moving to slide five average deposits of $454 billion increased $53 billion compared to the second quarter driven by the acquisition.

On the right you can see total period end deposits were $449 billion at September 30, a decline of $4 billion or 1% linked quarter.

Inside of that PNC legacy deposits increased $9.0 billion as deposits continue to grow reflecting the strong liquidity position of our customers.

Overall, our rate paid on interest bearing deposits is now four basis points, one basis point decline linked quarter.

Slide six details the change in our period end securities and Federal Reserve balances.

And as most of you know we have been disciplined in deploying our excess liquidity with rates at historically low levels.

Back at the beginning of the year as the yield curve steepened, we accelerate accelerated our rate of purchasing activity. However towards the end of the second quarter, we deliberately slowed our purchases as yields declined.

With the increase in rates at the end of the third quarter, we resumed our increased levels of purchasing including $9.0 billion of forward settling security, which will be reflected in the fourth quarter.

Average security balances now represent approximately 24% of interest, earning assets and we still expect to be in the range of approximately 25% to 30% by year end.

As you can see on slide seven our third quarter income statement includes the full quarter impact of the acquisition.

Reported EPS was $33.0, which.

Which included pretax integration costs of $243 million <unk>.

Excluding integration costs adjusted EPS was $78.0

Third quarter revenue was up 11% compared with the second quarter, reflecting the acquisition as well as strong organic fee growth.

Expenses increased $537 million or 18% linked quarter, including $235 million of integration expenses and two additional months of BBVA USA operating expenses.

Legacy P&C expenses increased $76 million or two 7% virtually all of which was driven by higher fee business activity.

Pre tax pre provision earnings excluding integration costs were $10.0 billion.

$25 million or 7%.

The provision recapture of $203 million was primarily driven by improved credit quality and changes in portfolio composition.

And our effective tax rate was 17, 8%.

For the full year, we expect our effective tax rate to be approximately 17%.

As a result total net income was $6.0 billion in the third quarter now, let's discuss the key drivers of this performance in more detail.

Turning to slide eight these charts illustrate our diversified business mix and total revenue of $7.0 billion increased $530 million linked quarter.

Net interest income of $11.0 billion was up $275 million or 11%, reflecting the full quarter benefit of the earning asset balances acquired from BBVA USA.

Side of that interest income on loans increased $277 million or 13%, while investment securities income declined $9 million.

Driven by elevated premium amortization on the acquired BBVA USA portfolio.

Net interest margin of $2, two 7% was down two basis points, driven primarily by lower security yields importantly.

Importantly in the fourth quarter, we expect premium amortization to decline meaningfully in the yield on securities the yield on the securities portfolio to increase.

Third quarter fee income of $10.0 billion increased $274 million or 17% linked quarter.

BBVA USA contributed fee income of $184 million, an increase of $122 million linked quarter driven by two additional months of operating results.

Legacy P&C fees grew by $152 million linked quarter, or 10% driven by higher corporate service fees related to record M&A advisory activity as well as growth in residential mortgage revenue.

Turning to slide nine our third quarter expenses were up by $537 million or 18% linked quarter.

The increase was primarily driven by the impact of higher BBVA usa's expenses of $327 million and higher integration expenses of $134 million Piceance.

PNC legacy expenses increased $76 million or two 7% due to higher incentive compensation commensurate with the strong performance in our fee businesses.

<unk>, a record quarter and M&A advisory fees.

Our efficiency ratio adjusted for integration costs was 64%.

Additionally, we're confident we will realize the full $900 million in net expense savings off of our forecast of BBVA USA 2022 expense base and expect virtually all of the actions that drive the $900 million of savings to be completed by the end of 2021.

We still expect to incur integration costs of approximately $980 million related to the acquisition.

Since the announcement of the acquisition, we've incurred approximately half of these integration costs.

And as Bill mentioned, we appreciate all the hard work our teammates have done to keep us on track and to achieve these goals.

Our credit metrics are presented on slide 10, and reflects strong credit performance.

Nonperforming loans at $7.0 billion decreased $251 million or 9% compared to June 30, and continue to represent less than 1% of total loans.

Total delinquent fees of $5.0 billion at September 30 increased $106 million or 8%.

However, this increase includes approximately $75 million of operational delays and early stage delinquencies primarily related to BBVA USA acquired loans.

Subsequent to quarter end all of these operational delinquencies have been or are in the process of being resolved. Excluding these total delinquencies would have increased $31 million or 2%.

Net charge offs for loans and leases were $81 million, a decline of $225 million linked quarter.

The second quarter included $248 million of charge offs related to BBVA USA loans.

Mostly the result of required purchase accounting treatment for the acquisition.

Our annualized net charge off loans in the third quarter was 11 basis points.

During the third quarter, our allowance for credit losses declined $374 million, primarily driven by improvement in credit quality as well as changes in portfolio composition.

At quarter end, our reserves were $6 billion, representing 2.02, 0.07% of loans.

In summary, PNC reported a strong third quarter and notably earlier this week converted the BBVA USA franchise.

With this that's completed we expect to add significant value to our shareholders as we continue to realize the potential of the combined company.

Looking at the fourth quarter of 2021 compared to the recent third quarter results.

We expect average loan balances, excluding PPP to be up modestly.

We expect NII to be up modestly.

On a percentage basis, we expect fee income to be down between three and 5%, mostly reflecting the elevated third quarter M&A activity.

We expect other noninterest income to be between $800 million, excluding net securities and visa activity.

On a percentage so we expect total noninterest expense to be down between three and 5% excluding integration expense, which we approximate to be $450 million during the fourth quarter.

And we expect fourth quarter net charge offs to be between 101 hundred $50 million.

And with that Bill and I are ready to take your questions.

Yes.

Thank you at this time, if you'd like to ask a question. Please press the number one followed by the number four on your telephone keypad.

Please hold while we compile the Q&A roster.

Your first question comes from the line of Dave, Georgia with Baird. Please go ahead with your question.

Hey, guys. Good morning, I had a question.

Good morning, Rob on loans, So you said them.

On the BBVA Theres, an additional $5 billion of declines to come can you kind of give us a sense with respect to the timing and how you see that.

That portfolio running off and then I've got a follow up.

Oh sure.

Again, good morning, Dave.

All of the $5 billion that we've identified going forward that we intend to write off.

$2 billion of that we expect to run off in the fourth quarter and that's part of our guidance the remainder.

Over the next couple of years.

Great Thanks for that.

Sure in terms of kind of the legacy PNC C&I businesses, obviously, it was encouraging to see a little bit of kind of organic growth.

In the in the third quarter can you give us a sense and this may be difficult, but clearly clearly supply chain is weighing on working capital needs and I'm curious if you can contrast, the growth in commitments relative to the growth in outstandings in commercial and just kind of curious.

How the commercial business is doing with respect to adding new names and new commitments into where I would say not seeing the benefit of that at least today in terms of outstandings because of that inventory issue.

It's Bill you know we've been for the last couple of quarters, our new money commitments have been I think maybe at record levels, Rob, but increasing each quarter.

And so new business new clients in some cases, just upsizing, what we already had and then Florida.

We had a little bit the utilization, but most of this was kind of new client growth.

Yeah, that's right right.

And as you know like we had mentioned that utilization ticked up a little bit still at historic lows, but a little bit and that was part of it too.

Sounds good guys. Thanks.

Sure.

Thank you. Our next question is from the line of <unk>.

John Penn Carey from Evercore ISI. Please go ahead.

Good morning.

On your your on the loan growth topic that pick up in utilization and then also the new clients that you mentioned could you give us a little more detail on what areas, what business areas, which industries, but you're starting to see.

But.

The momentum starts to build.

Yeah, they're kind of related I mean, the growth in our secured lending areas.

Sort of stood out and they traditionally have higher utilization. So in some ways. It was an increase in the overall average because we grew the book with the highest.

Individual average rate.

But even in the straight middle market corporate book finally, stabilizing I guess went up a couple of basis points, there just a little bit.

Yes, so basically business credit our asset base lending group and corporate banking.

Got it Okay and then on the expense side, just wondering if you could talk a little bit about.

Our wage inflation, if youre starting to see any signs of that in your in your franchise and also if so is there any risks to know how we're thinking about the merger costs or the $900 million.

Thanks.

With respect to wage inflation, you might've seen an announcement that we you know we increased our base rate to at least 18 and.

And beyond that in some cases in certain markets.

So $18 an hour, yes, sorry, and it's.

So that is real but that.

You know that was kind of already assumed in our financial assumptions. It doesn't have anything to do with our assumed cost saves.

But there's real pressure there and the only way through time to kind of offset the pressures through increased automation and as you know for.

Frankly controlling overall head count.

Okay. So fair to say, though longer term impact on how you view the long term efficiency ratio for the bank.

Too early to tell right. We're on this so so average wages per employee are going to go up.

At issue is how quickly we how we scale our franchise through automation, so we become larger.

Without more employees.

And that's played out for a period of time here John If you just go through our financial statements, even going back for five years.

We just need to continue that training the trend to be able to continue.

Continue our pursuit on positive operating leverage and to offset what is real in terms of wage pressure.

Got it alright, thank you.

Thank you.

Our next question is from the line of Scott <unk> with Piper Sandler. Please go ahead.

Good morning, guys. Thanks for taking the question I was hoping to drill into the expense dynamics are a little more so your fees.

<unk> excellent this quarter are those those will come down but still appear to remain very strong as it relates to the kind of the related cost outlook. How much of your expense guide contemplates sort of ongoing costs related to that that strong fee momentum and then can you maybe sort of.

Size up how the 900 million in BBVA related cost savings fit into the fourth quarter guide and I in other words, how much starts to come next quarter or comes next quarter and then how much is into 2022 still.

Sure.

That's a lot there Scott, but the easy answer to that is that's all in that's all in the guidance.

For for the fourth quarter so.

We to your point fee businesses have been good in the third quarter they've been good all year.

Across the board asset management, and consumer services corporate services, particularly in the third quarter as well as residential mortgage and with the exception of the elevated levels of M&A activity and corporate services, we see all of that continuing into the fourth quarter and that's part of the guide so there'll be expenses that are obviously associated with that.

In terms of the 900 million.

In savings.

We are achieving savings.

<unk>, we got some in the third quarter, we will get some more in the fourth quarter. That's part of the guide, but the bulk of the savings will be in 2022. So you know reaffirming the $900 million in savings.

Portion of which will recognize in 2021, and then of course going forward into 2022, all in our guidance.

Perfect. Thank you and then you touched on this in your prepared remarks, but that elevated premium amortization at BBVA that weighed on the consolidated company as securities portfolio yield can you can you just expand upon that a little please.

So it was it was painful.

[laughter].

In its simplest form we marked that securities book, when we close the deal June 1st Yeah.

Really low rates that then continued through in fact rallied through the quarter. So the prepay rates on their CMO is increasing we had so you think about it we mark our book to whatever the yield was it's at a premium all of that.

Prepays because of the low rates hopefully.

We expect that to abate as rates have now kind of gone back up.

Yeah.

We marked them as premium securities and they got caught by the and it was a function of the timing of the acquisition setting.

Setting up the securities as premiums in its simplest form what we did if you think about it is it knocked down goodwill.

When we Mark the book, because we had a higher valued asset.

So it took effect took an income upfront and that's rite aid for it a little bit this quarter that's right.

I mean the.

The securities yield when it seems like the guide on the like that book yielded.

50 basis points or something that have yeah yeah.

And we expect going forward. The total book to increase that's right, which is what I said in my head. It in my comments that's right yes.

And go ahead.

Behind that and it is you know it is acquisition related and it was paid back with [laughter] alright, perfect I appreciate the color.

Yeah.

Thank you. Our next question is from the line of Betsy <unk> with Morgan Stanley. Please go ahead with your question.

Hey, good morning.

Good morning Betsy.

Hey, I know, we've had a lot of expense discussions already but I'm just looking at what you've done so far in the quarter you know when I look at your detail around.

The run rate of expenses at D. A N.

<unk> the one month thing or that you had and the three months three four months he hadn't <unk> human already it looks like you brought down expenses a bit and I'm just trying to understand what you've done so far and.

And what's left from here because you've already executed.

A bit it seems right.

Thanks.

Well no no youre right Youre right, Hey, Betsy this is Rob but here right now we started as we said we would so we have begun to realize the expense savings are pretty much across all the categories.

But we're just getting started so what you see in that state.

We still have work to go.

Okay, and then when I'm thinking about.

The pace of that expense save from here or a part of it is a function of the conversion of lift and shift obviously, but can you talk us through what comes after the lift and shift.

In terms of expense saves trajectory.

I don't know what I was talking about.

When you're talking about the activities and then I can take a lot of line items. So I mean, we know like the branch closures and you know what yeah, Yeah, that's right.

And really the question.

Yes, all of US some of its branch closures some of it will be in the form of people who have stayed with us through conversion on stay bonuses.

They'll be shut down of systems and vendor contracts and all sorts of different things that will roll through dependent on time, some of which we leave around for a bit.

Sort of back up for you.

Notwithstanding the fact, we've converted will leave some stuff up and running for a little bit of time just for the in case I think that's right and probably at least in terms of the pick up in the fourth quarter activity, we will at.

The mix, we will pick up more vendor savings. So we've already started that and pick <unk>, who will start to pick those up at an accelerated rate.

Yeah, and I guess the question really is lift and shift as a percentage of total cost saves.

It's like round gifts.

That's the wrong way to think about it but the fact that we get that done at one point in time allows us to then aggressively move costs.

Alright, because because legacy systems shut down legacy vendor shut down related people, who were supporting applications all of that stuff now starts rolling through the system.

Okay.

Yeah, Yeah, and my point is it's not you know the one and done it's it's a portion of the total.

Expense save that you'll be generating.

Yeah.

You know that.

At the end of the day the guidance is the guidance right.

We're going to we're going to get some more in the fourth quarter and then we're gonna get at all next year, Yeah, and I'd just say we're on track we will get it all we know the line items, where it will come from.

I just think I think the way to think about it that is its sequential so the conversion and the lift and shift clears the deck so to speak to get started sooner rather than later on realizing those savings.

Got it alright, thank you.

Sure.

Thank you. Our next question is from the line of Gerard Cassidy with RBC. Please go ahead.

Good morning, Bill Good morning, Rob.

Hey, Gerard.

Can you guys share with US you mentioned, a few times and within the corporate services numbers that the advisory business. I think you said in the press release it was at record levels, but you expressed in your guidance you expect it to come down other than the obvious pipeline that you guys see in your book can you share with us.

What else you guys on the front lines are seeing about M&A.

The.

There's just not as much.

As many companies that are left to do M&A and going into 'twenty two.

Yes.

And it's in its simplest form you set a record you assume you won't keep setting records theres nothing out there that suggests necessarily.

It's going to weaken from here.

But by the way inside of that we obviously you know we have Harris Williams, but we also had breakout quarters for Sol Barer and six point and related advisors yeah.

You know and if the market continues that we'll continue to have great fee income out of it but.

It's hard to keep you know say, we're gonna budget a record upon a record.

It's as simple as that that's right.

And what does it represent now a corporate services or what did it represent in the third quarter.

Well, yeah, and I I I know that the let's say I'll do the quick math in my head down 25%.

Yeah got it.

Okay, and then a question on the loan to deposit ratio you and your peers of course, I'm, a incredible amounts of liquidity and that ratio has come down we've looks like the fed now is going to enter into a tapering phase and clearly there's still be adding to the deposits of the banking system.

There's too many variables.

Okay. I mean, it's it's you know if you go back in history right people would would operate you know I don't know, where we were at 85% or 85 to 85 to 90.

And that was kind of a a liquidity safety function. So so if you were short liquidity at that point you'd you'd raise wholesale liquidity to kind of keep your ratio at that point.

Today, we're so flush with reserves into the system wholesale funding is next to zero.

And until the fed forget about tapering actually shrinks its balance sheet.

That's not gonna change no loan growth, even accelerated an exaggerated loan growth will absorb some of that but I think youre going to St loan to deposit ratios low for a long period of time and therefore.

I think youre going to see security balances as a percentage of our balance sheet and we've already talked about this increase.

You know across the across the industry.

That's good.

I think it's going to take years to play out.

Very good I appreciate the color. Thank you.

Thank you.

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

Hi.

Good day.

No good deed goes unpunished.

So since you from announcement to conversion.

11 months, probably a record why aren't you increasing your $900 million cost savings.

But more generally.

Having completed the lift and shift conversion over the weekend.

What parts of your technology.

Do you think are further validated whether it's your use of the cloud or data lakes or something digital that youre doing that you think others have in advance as far as you have.

Well look what was the first question.

<unk>.

At the end of the day, we're always in the business of figuring out how to become more efficient I think of the 900 is line items. We know we can get.

We actually know where they're coming from and when Theyre going to show up.

So you're right at the margin you know, we'll find some other stuff by the way, we'll probably find some stuff we need to invest it to so we just we put that into our guidance. We say look we'll get the 900, we will talk to you about 'twenty two when we get closer but we haven't lost focus on the primary objective and the 900, you know that Mike that the 900.

Was estimated off.

The expectation that we would convert and when we did so we didn't convert sooner than we thought we did it on time, so, but that's but that was a number that.

I don't know how to say this visual two we can see it like we know the line items, it's very precise.

The technology.

Look it worked.

You know we had at the margin some.

Confusion with retail clients on password resets and some other things, but the basic technology moving it overturned it on it all worked.

You know, which is just phenomenal effort by our team and validates the investment we've made over the years.

Don't hold their own data they call from a central Lake.

And they are linked through API and their cloud native it. It just makes it very easy to move data and you onboard a new client it's not much different than if we just got you know a couple of million new clients overnight.

That debt.

I'll make it sound very easy and all my technologists are up in there.

But that's what that's what we did and it works and you know the investment and that was everything from the data Lake to cloud native to API and everything.

And frankly to having businesses in technology.

So technology at PNC is not in our back office somewhere doing his job, they're actually side by side and agile teams working with their business.

<unk> to develop product and importantly to execute the conversion, which we did.

You know that.

Cultural element is probably as important or more important than all the rest.

So I was just in the <unk>.

Final look at this.

How many apps did you eventually.

Keep from them or how much in gigabytes to add or this one more time why you added.

Well, we ended I think we ended up keeping tour or something and when we went to last number is yeah. We one was the.

Business transfer.

Personal foreign currency transfer business.

I don't know what the other one was.

And that's kind of it.

And that was I would just finish I have the numbers right was that out of 600, and you have 300 or something like that.

I mean, there's not as much.

We went through that before and I can't remember off the top of my head, but they had twice the number that we have roughly 600. They had more than 600. They had 600, we run the whole bank on 300, a little more than 300, a little more.

What why is my was that I mean, that's the number that stands out there is so much smaller yet they had twice as many apps and.

I don't think I don't know state.

Yeah.

Thank you.

Once you start.

Using the API based programs, it's almost kind of a click and drag right. You don't have to recreate functionality across multiple applications you can simply bring in whatever functionality you need from a library of API.

If I may.

So, let's say that an application that just needs a checking account balance rather than.

You're right a full application that goes and finds a checking account balance off your core ledger, we just haven't I E.

Dragon.

Produce it.

I think that's a big part of it it's also.

Credit to the team way back when we did national City, we moved everything onto a single applications right a lot of times with BBVA might have done this.

You know Youll do an acquisition you just keep too many applications of life, because you don't want to choose between one or between the two of them.

Got it alright, thank you.

Yeah.

Thank you.

Our next question is from the line of John Mcdonald with Autonomous Research. Please go ahead with your question.

Hi, good morning, guys.

PPP the PPP dynamics are confusing to all of us and.

I just wanted to ask a little bit about that so.

So Rob on the outlook I think it is helpful that you give the core loan growth and it excludes PPP, but maybe you could give us a sense of what you expect for PPP payoffs in the fourth quarter and then beyond and then also on the NII as Pp P included in that and what kind of PPP contribution have you had to NII.

Hi.

This quarter, what does that what happened to that going forward, yes, yes.

Yes in simple terms, John and you're right it is confusing but <unk>.

<unk> put we expect <unk> to be down on average about $4 billion in the fourth quarter.

In the third quarter and net interest income contribution from PPP was about $100 million.

And we expect that to go down approximately 25 to 30.

And that is in our guidance our NII guidance.

Yep, Okay Gotcha.

Great another.

Cleanup question here on the securities redeployment of cash into securities, 25% to 30% the target for this year.

Overtime and this gets into the discussion that you had with withdraw it about loan to deposits, but could that go higher overtime, if loan growth doesn't surface as much as we think.

I think it could I think that depends.

<unk> set.

Where the yield curve is an and.

How do we think about long term risks I mean part of the issue today. John is you have this.

You know long tail risk, maybe it's not such a long tail that you end up with a spike in long rates because inflation becomes real.

Which causes you at the margin to be slower than you otherwise might be in deploying that cash I think is that risk normalizes. If we don't see loan growth youll see balances increase.

Got it okay. Thanks, guys.

Sure.

Thank you.

Our next question is from the line of Bill <unk> with Wolfe Research. Please go ahead with your question.

Thank you good morning, Bill and Rob.

Good morning following up.

Following up on Gerard question as we look ahead since then tapering and eventually rate hikes, how are you thinking about.

Deposit betas relative to when we exited the last sort of cycle.

You know I think theyre going to be a lot lower simply because theres. So much cash sloshing around remember, even when the fed tapers, they're not necessarily shrinking.

And so with the cash in the system the competition for.

Deposits just won't be as great as it once was so I think of the margin they've got to be lower.

And another way of answering that with all of the deposits that we have we're not thinking a lot about betas right.

Right Yeah.

Yeah no.

That makes sense.

That's helpful.

And I guess going back to the momentum youre seeing in new money commitments, what's your sense from your discussions with your customers the extent to which utilization rates are going to remain relatively depressed as long as the supply chain problems that were seeing remain unresolved versus the potential for continued improvement even if the supply chain problems were.

Extend well into next year say.

Tend to get a feel for how big that.

How much was it.

It varies across industries.

Hey.

I shouldn't say without question, but the vast majority of our clients talk about the need and desire to build inventory and do more capex, which is why some of the lines have been increasing.

Their ability to execute on that is somewhat dependent on supply chain and it depends it depends what industry you're in if you're if you're dependent on.

Chips for your manufacturer.

It's a struggle.

Other businesses, you know or not and could build immediately and maybe we're already seeing the benefit of that.

Got it.

Hum.

Suites to BBVA and the revenue synergy opportunities when you think about those how do you how does your confidence level around the timing and magnitude.

Realizing those differ.

Relative to what you saw at RBC.

Seems like you guys have the playbook, but just trying to get a sense for differences that you may see in execution.

Right.

Yeah, Hey, Bill it's Rob.

In terms of contracting with RBC just set that aside in terms of the BBVA. We're very confident in terms of the numbers as bill mentioned that we've laid out in the plans to get there.

It's probably it's probably on the increment better than RBC, just because it's bigger we know what we do it's very familiar.

RBC was successful, but this is I.

I mean this is more of a magnitude.

And my clients, who runs the CNI business would say, it's as much as perhaps a year faster.

He gets there largely because the teams are in place much faster than we had them in place with RBC.

See how that plays out, but but we're hitting the ground faster in terms of teams who are out calling on clients and then we also have a book of business with BBVA that is better than what we had with RBC. So it has the ability to upsell that book of business.

On the fee side, you'll remember I was talking about just the <unk>.

Senator fees to total revenue being very low so we have an opportunity for fee momentum early on we have teams in place and we ought to be able to grow clients a little bit faster than what we saw in RBC just because we're on the ground already.

That's the revenue aspect of it I think the revenue aspect of it is significantly higher than that.

RBC at the expense side I thought it was the question.

The magnitude that I mentioned is his answer.

Taking a closer look at it and then second from a risk perspective, how concerned are you about the risk of disruption.

From a decentralized finance.

So what we talked about or what we are.

Contemplating offering.

Literally have built today.

To our clients and look our clients are interested in it as an ability for them to trade crypto in a safe fashion through.

Mobile App at PNC I don't have to opine on whether I think that's a good investment or not a bad investment we know with certainty that we have.

10% to 15% of our clients, who are moving money into into and out of crypto exchanges. So they're interested in it and our survey confirmed that.

The financial disruption of crypto broadly and <unk>.

Probably inside of that stable coin.

As a real threat.

And it depends on how that plays out through time. There is the risk I think that people are aware of with certain.

Certain of the stable coins, having let's call it suspicious collateral behind them.

But there is also the risk through time that.

<unk>.

Substantial portion of savings and other domestic savings or even emerging market savings.

Get absorbed into a stable Clinton and out of the traditional money transmission system and that would affect the economy and the ability to control the money supply long term and I think that's what.

Well I know that's what the various regulatory bodies are looking at to figure out how to get their arms around.

But that's independent of whether we let our clients trade bid correct right.

Yes.

As a revenue opportunity from that portion of it even.

Quite simply just providing the service to them.

So that is that a fair conclusion.

Sure I mean at the margin.

But at the margin Don stated a big driver.

Right right I got it.

Super helpful. Thank you again for taking my questions.

Sure.

Thank you.

Our next question is from the line of Ken Houston with Jefferies. Please go ahead.

Hey, Thanks, good morning, guys.

Can I come back Rob on the.

That's all that's all in our guidance in terms of the dollar amounts.

But you know I'd say I'd say, if you take a look at it in terms of the yields you can see the decline in yields if it wasn't for the elevated premium amortization expense, we would be close to down a little bit from the second quarter levels.

Okay. That's fair and that was my second question is what are you seeing just on core front book back book relative to these forward settling in.

Just what youre seeing in the market today, and where you can get your hands on.

Well, it's looking better is what we said relative to the yields were buying today, but we expect the yield on the total book to increase pretty substantially next quarter largely because of it.

Kris and the AR and the amortization.

<unk> that's right.

And then lastly, just purchase accounting accretion you said it was 30 in the second quarter do you have anything in the third and how do you expect that to look like the Max de Minimis de Minimis.

In the third and going into the fourth quarter, which is a good thing.

Yeah, Okay, great. Thanks.

Thank you. Our next question is from the line of Terry Mcevoy with Stephens. Please go ahead.

Thanks, Good morning.

Bill you mentioned that at an industry event last month that California was an underperforming franchise I believe at legacy BBVA U S. What are your thoughts on turning that around is it is it build is it by or is it just internally worked to improve the franchise.

Yes.

It's it's building it I mean it was underperforming.

<unk>.

Largely because they didn't have the products and services to cover the corporate opportunity that's in California and by the way that opportunity is massive.

So.

The big effort for Us and we're fairly law, we're fairly far along in the process is to get feet on the ground.

On the corporate side, who can cover clients in some cases bring relationships with them. So.

We don't need to buy anything.

You know at the margin.

Thanks, and then just as a follow up question could you maybe talk about the rollout of low cash mode is that allowing.

Allowing you to play more offense or is that more defense and then is that.

Was it 125 to $51.0, the decline in overdraft fees is that still the right way to think about the impact of of that product on fees. Thank you.

Hum.

So the rollout has been.

Somewhat seamless and of course, we just the conversion of BBVA, we've put all of their customers are enabled that.

Low cash mode.

All other products who converted over.

Yeah.

Forget the current stats, but it's millions and millions and millions of alerts that have gone out its millions of.

People, who have been able to.

Transfer money before they get hit with a charge.

It's people being able to choose the order it which.

You want to pay a bill and return items with no return fee.

And look we in some ways, we can lead the industry into this discussion and you've seen how people have reacted.

Part of our lead was in what we charge customers, but a big part of our lead.

Was on technology, and simply empowering customers and most everyone who has followed us kind of doing it through brute force and just cutting fees as opposed to offering different solutions, which is the most important thing about low cash mode I think.

So we're happy with what it's what it's doing.

Knocked our complaint volume into the care Center.

Down by I don't know.

The numbers on overdraft over 50% are on overdrafts, even higher than that.

So it's done exactly what we thought it would do.

Great. Thank you.

Thank you. Our next question is from the line of Matt O'connor with Deutsche Bank. Please go ahead.

Hi, good morning, it seems like the loan portfolio at BBVA USA it'll be mostly.

De restaurant run off by the end of <unk>, We're just a couple of billion less than two years.

Is there an opportunity to kind of fill that bucket.

Relatively quickly I guess, what I'm getting out and maybe you can take down the CAGR holds because you're a bigger company.

Legacy PNC or just some low hanging fruit to.

So some of that loan run off between this quarter on <unk>.

It's embedded in our guidance I mean, you got to appreciate Matt we're not.

If loans are up or down by a $1 billion in a quarter and we're not going to a party over.

You know the organic resolved by by doing something we otherwise wouldn't do it.

I'll follow its ordinary flow will grow clients. We are a larger company. So we can take larger holds if we want to utilization.

Utilization will hopefully go up.

And as we always do we're sensitive to risk and they they have some books of business that.

Yeah.

Sure.

Both in some cases riskier than we'd like to be in and in other cases. They just have no cross sell opportunity and so the return on the equity to deploy to hold those loans, it's just really low.

But I would add Matt I mean, obviously central premises acquisition. These are growth markets. So we would expect through time to generate above average growth.

Not necessarily in the next 90 days.

<unk>.

That's obviously a big opportunity for us.

Okay, Yeah, and I wasn't so much looking for just the fourth quarter or I guess, almost I'm thinking like the next few quarters do you get outsized loan growth given.

Yes.

If we get a tailwind at all Youre definitely going to see that and I think you know in.

Most importantly, if you go back and look at our loan growth through the period of RBC, So kind of.

Two plus years. After we did RBC, we started to really accelerate and corporate loan growth I never said, how are you doing that and its all new customers and new markets and we fully expect that we're going to be able to do that in all of these new markets that we just developed admittedly with some noise in the front because we're going to run off.

<unk>.

BBVA in an outright loan growth as we've seen fairly tepid at the moment.

Okay. Thank you.

Thank you.

As a reminder to register for a question. Please press the one followed by the four on your telephone keypad.

Our next question is a follow up from Gerard Cassidy from RBC. Please go ahead.

Hi.

Thank you for taking the follow up question.

You guys mentioned about raising the entry living wage or minimum wage for your folks. Some of your peers have done the same excuse me bank of Montreal raise their wages, 20% last week and Bank of America has got the 50 program. So the question is this can you share with us what it means for the people right.

The entry level.

Excuse me in the entry level worker, meaning like a branch manager how far up does that ripple.

In terms of the inflation on wages because of the minimum wage going up.

It goes straight up through the pay grades I mean, most of the cost is actually in the compression.

As opposed to the initial job for the people who are at the lowest level. So.

Part of the work set to go through it is to figure out in fact, how you.

Move people up who are.

Today at 18, but.

Tomorrow.

If the $15 person went to 18, the $18 person goes to 2050, or so and I'm, making up numbers here, but.

That's the majority of the cost and by the way. It's a majority of that works out to get right.

Good Okay no I appreciate it thank you.

Yeah.

Thank you. Our next question is a follow up from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Hi can you put a wrap it around your expectations for loan growth.

That seem to be like the big question going into the quarter and in the past you mentioned over half your commercial clients are private companies, which don't have the same access to capital markets and therefore, they might come back come back first so just one final thought on loan growth. When do we think you think we get the you know.

The big burst of loan growth is it a quarter away is it three quarters away is it a year away what do you think and why.

Well, Mike I think you asked me this nine months ago.

Yeah.

I said I can wish and hope for it but I'm not sure I can predict that any better than the next guy what we're seeing.

For the first time is not just the new money going out the door, which we've been growing clients and growing committed money.

But we're starting to see that move in utilization.

That is.

Foreshadow foreshadowing what happens into the fourth quarter into next year, then we're going to have really accelerated loan growth.

If we bounce around where we are then it's going to be somewhat muted and by the way that's kind of what you see in our guidance.

It's kind of it's been right. It's kind of it's kind of you're asking me to go out and say hey supply chain is going to be fixed and loan growth is going to rip.

Given that and I hope it does.

But you know I'm not the expert to answer that.

Okay, well, maybe just specific numbers and the utilization a little bit more of your tenants at the highest level.

Since our early last year, or so, but what's a normal level of utilization what was the love and where is it now.

That's still what 15 points FICO, we're at 49 ish and a $54.55.

Normalization, yeah, so or at least 10 points off and we're probably 15.20 points off the peak in March of last year.

Alright.

A lot of room here.

Okay.

Yeah.

Alright. Thank you there are no further questions.

Alright, well. Thank you everybody I look forward to talking to you in the fourth quarter. Thanks. Thank you.

This concludes today's conference call you may now disconnect.

Q3 2021 PNC Financial Services Group Inc Earnings Call

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