Q3 2023 PNC Finacial Services Group Inc Earnings Call

Well good morning, and welcome to today's conference call for the PNC Financial Services Group I Am Bryan Gill, the director of Investor Relations for P&C and participating on this call are Pnc's, Chairman, President and CEO, Bill Demchak, and Rob Reilly Executive Vice President.

Speaker 1: Well, good morning and welcome to today's conference call for the PNC Financial Services Group. I am Brian Gill, the Director of Investor Relations for PNC and participating on this call are PNC's Chairman, President and CEO Bill Demchak and Rob Riley, Executive Vice President and CFO .

And CFO.

Speaker 1: Today's 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 are all available on our corporate website, pnc.com, under investor relations.

Today's 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 are all available on our corporate website PNC Dot com under Investor Relations. These statements speak only as of October.

Speaker 1: These statements speak only as of October 13, 2023, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

13th 2023, and PNC undertakes no obligation to update them now I'd like to turn the call over to Bill.

Speaker 2: Thank you, Brian . And good morning, everyone. As you can see on the slide, we delivered strong results in the third quarter generating 1.6 billion in net income or $3.60 in diluted earnings per share. Rob's going to take you through the numbers in a moment, but I'd like to touch on a few highlights. First, in a challenging operating environment, we generated three points of positive operating leverage through discipline expense management.

Thank you, Brian and good morning, everyone. As you can see on the slide we delivered strong results in the third quarter generating $1 6 billion and net income of $3 60 in diluted earnings per share Rob's going to take you through the numbers in a moment, but I'd like to touch on a few highlights first in a challenging operating environment, we generated three points of <unk>.

Positive operating leverage through disciplined expense management, our credit quality remained strong during the quarter, reflecting our thoughtful approach to managing risk customer selection and long term relationship development all of which have historically served us well in challenging economic cycles next we strengthened our capital and liquidity.

Speaker 2: Our credit quality remains strong during the quarter, reflecting our thoughtful approach to managing risk, customer selection, and long-term relationship development, all of which have historically served us well in challenging economic cycles. Next, we strengthened our capital and liquidity positions even further during the quarter. While we continue to monitor discussions regarding regulatory changes in these areas, based on our current estimates, we are well-positioned to meet the proposed requirements without meaningful changes to how we operate.

<unk>, even further during the quarter, while we continue to monitor discussions regarding regulatory changes in these areas based on our current estimates we are well positioned to meet the proposed requirements without meaningful changes to how we operate.

We continue to execute on our key strategic priorities, including our expansion market efforts and upgrading our digital capabilities and we leveraged our strong balance sheet to take advantage of opportunities such as the signature bank loans that we recently acquired.

Speaker 2: Finally, we are focused on expense management, particularly in the current environment, and have taken actions to maintain disciplined expense control.

Finally, we are focused on expense management, particularly in the current environment and have taken actions to maintain disciplined expense control. We increased our continuous improvement go last quarter from 400 million to 450 million and we are on track to achieve that goal in 'twenty two 'twenty three.

Speaker 2: We increased our continuous improvement goal last quarter from $400 million to $450 million, and we are on track to achieve that goal in 2023.

Speaker 2: Looking ahead, we expect to have CIP savings within a similar range for 2024. And as a reminder, we use savings from this program to fund investments in key growth markets and technology.

Looking ahead, we expect to have CIP savings within a similar range for 'twenty 'twenty four and as a reminder, we use savings from this program to fund investments in key growth markets and technology.

Speaker 2: In addition, earlier this month we began executing on staff reductions which will reduce our 2024 expenses by $325 million and will fall to the bottom line. All told, we are implementing more than $725 million of expense management actions that will have impact on 2024.

In addition earlier this month, we began executing on staff reductions, which will reduce our 'twenty 'twenty four expenses by 325 million and will fall to the bottom line. All told we are implementing more than $725 million of expense management actions that will have impact on 'twenty 'twenty four.

Speaker 2: While decisions involving personnel are never easy, we believe they will help us more effectively and efficiently deliver for our customers and our stakeholders, and will continue to be diligent in our expense management going forward. And with that, I'll turn it over to Rob.

Our decisions involving personnel are never easy we believe they will help us more effectively and efficiently deliver for our customers and our stakeholders.

And we will continue to be diligent in our expense management going forward and with that I'll turn it over to Rob.

Speaker 3: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide 3 and is presented on an average basis and comparing to the second quarter.

Thanks, Bill and good morning, everyone. Our balance sheet is on slide three and is presented on an average basis and comparing to the second quarter.

Speaker 3: Loans were down 2% and averaged $320 billion.

Loans were down, 2% and averaged $320 billion investment securities declined $1 billion or 1%.

Speaker 3: Investment securities declined $1 billion or 1%.

Speaker 3: Cash balances at the Federal Reserve increased $7 billion to $38 billion.

Cash balances at the Federal reserve increased $7 billion to $38 billion.

Speaker 3: Deposits of $423 billion declined $3 billion, or 1%.

Deposits of $423 billion declined $3 billion or 1%.

Speaker 3: Borrowed funds increased $2 billion, primarily due to senior debt issuances near the end of the second quarter.

Borrowed funds increased $2 billion, primarily due to senior debt issuances near the end of the second quarter.

Speaker 3: At quarter end, AOCI was a negative $10.3 billion compared to a negative $9.5 billion at June 30th, reflecting higher interest rates.

At quarter end, a O C. I was a negative $10.3 billion compared to a negative nine and a half billion dollars at June 30th reflecting higher interest rates.

Speaker 3: However, tangible book value increased to $78.16 per common share, as retained earnings growth exceeded the negative impact of AOCR.

Tangible book value increased to $78 in 16 cents per common share as retained earnings growth exceeded the negative impact of a OCI.

Speaker 3: Common dividends in the quarter totaled approximately $600 million.

Common dividends in the quarter totaled approximately $600 million.

Speaker 3: And we remain well capitalized with an estimated CET1 ratio of 9.8% as of September 30, 2023, which increased 30 basis points length.

And we remain well capitalized with an estimated CET one ratio of nine 8% as of September 30th 'twenty, 'twenty, three which increased 30 basis points linked quarter.

Speaker 3: Slide four shows our loans in more detail. Third quarter loans averaged $320 billion and increased $6.5 billion, or 2%, compared to the same period a year ago, reflecting growth in both commercial and consumer loans.

Slide four shows our loans and more detail third quarter loans averaged $320 billion in increased $6 $5 billion or 2% compared to the same period, a year ago, reflecting growth in both commercial and consumer loans.

Speaker 3: Compared to the second quarter, average loan balances declined 2 percent as growth in consumer was more than offset by a decline in commercial.

Compared to the second quarter average loan balances declined 2% as growth in consumer was more than offset by a decline in commercial.

Speaker 3: Consumer loans grew approximately $500 million, reflecting higher residential mortgage and credit card balance.

Consumer loans grew approximately $500 million, reflecting higher residential mortgage and credit card balances.

Speaker 3: Commercial loans averaged $218 billion, a decline of $5.5 billion, driven by lower utilization as well as paydowns outpacing new production.

Commercial loans averaged $218 billion, a decline of $5 $5 billion, driven by lower utilization as well as paydowns outpacing new production.

Speaker 3: Low yields increased 18 basis points to 5.75% in the third quarter.

Loan yields increased 18 basis points to 575% in the third quarter predominantly driven by the higher rate environment.

Slide five covers our deposits in more detail.

Speaker 3: Slide five covers our deposits in more detail. Average deposits decreased $3 billion, or 1%, due to a decline in consumer deposits that was somewhat offset by a growth in commercial deposits.

Average deposits decreased $3 billion or 1% due to a decline in consumer deposits that was somewhat offset by growth in commercial deposits.

Speaker 3: In regard to mix, consolidated non-interest bearing deposits were 26% in the third quarter, down slightly from 27% in the second quarter, and consistent with our expectations.

In regard to mix consolidated noninterest bearing deposits were 26% in the third quarter down slightly from 27% in the second quarter and consistent with our expectations and.

Speaker 3: and we still expect the non-interest-bearing portion of our deposits to stabilize in the mid 20% range.

And we still expect the noninterest bearing portion of our deposits to stabilize in the mid 20% range.

Commercial noninterest bearing deposits represented 42% of total commercial deposits in the third quarter compared to 45% in the second quarter.

Speaker 3: Commercial non-interest-bearing deposits represented 42% of total commercial deposits in the third quarter, compared to 45% in the second quarter.

Speaker 3: and our consumer deposit non-interest bearing mix remains stable at 10%.

And our consumer deposit noninterest bearing mix remained stable at 10%.

Speaker 3: Our rate paid on interest bearing deposits increased to 2.26% during the third quarter, up from 1.96% in the prior.

Our rate paid on interest bearing deposits increased to 2.26% during the third quarter up from 1.96% in the prior quarter.

Speaker 3: And as of September 30th, our cumulative deposit beta was 41%, which was slightly better than our July expectation. Slides.

And as of September 30th our cumulative deposit beta was 41%, which was slightly better than our July expectations.

Slide six details our investment security and swap portfolios average investment securities of $140 billion decreased $1 billion or 1% as curtailed purchase activity was more than offset by portfolio Paydowns and maturities.

Speaker 3: Average investment securities of $140 billion decreased $1 billion, or 1%, as curtailed purchase activity was more than offset by portfolio paydowns and maturity.

The securities portfolio yield increased five basis points to 2.57%, reflecting new purchase yield of five 5% and the run off of lower yielding securities.

Speaker 3: The securities portfolio yield increased five basis points to 2.57%

Speaker 3: reflecting new purchase yields of 5.5% and the runoff of lower yielding security.

Speaker 3: As of September 30th, the duration of investment securities portfolio was 4.2 years.

As of September 30th the duration of investment Securities portfolio was 4.2 years.

I receive fixed swaps pointing to the commercial loan book totaled $35 billion on September 30th.

Speaker 3: I received fixed swaps pointing to the commercial loan book totaled $35 billion on September 30.

Speaker 3: The weighted average received fixed rate of our swap portfolio increased 34 basis points to 2.07%

The weighted average received fixed rate of our swap portfolio increased 34 basis points to 2.07% and the duration of the portfolio was 2.4 years as of September 30th.

Speaker 3: and the duration of the portfolio was 2.4 years as of September 30.

Accumulated other comprehensive loss increased by approximately $800 million in the third quarter has a negative impact of higher rates more than offset pay downs and maturities during the quarter.

Speaker 3: Accumulated other comprehensive loss increased by approximately 800 million dollars in the third

Speaker 3: as a negative impact of higher rates, more than offset paydowns and the

Speaker 3: Importantly, as lower rate securities and swaps roll off, we expect our securities yield to continue to increase.

Importantly at slower rate securities and swaps roll off we expect our securities yield to continue to increase resulting in a meaningful improvement to tangible book value from a OCI accretion.

Speaker 3: resulting in a meaningful improvement to tangible book value from AOCI accretion.

Turning to the income statement on slide seven.

For the first nine months of 'twenty twenty-three revenue grew 5% compared to the same period, a year ago, reflecting higher interest rates and business growth.

Speaker 3: For the first nine months of 2023, revenue grew 5% compared to the same period a year ago, reflecting higher interest rates and business...

Speaker 3: Noninterest expense grew 2% and was well-controlled, despite a higher FDIC assessment rate and inflationary pressure. Noninterest expense will fullyna

Noninterest expense grew 2% and was well controlled despite a higher FDIC assessment rate and inflationary pressures.

Speaker 3: As a result, we generated 3% positive operating leverage and PPNR grew 9%.

As a result, we generated 3% positive operating leverage and P. PNR grew 9%.

For the third quarter net income was $1.6 billion or $3 60 per share.

Speaker 3: For the third quarter, net income was $1.6 billion, or $3.60 per share.

Speaker 3: Total revenue of $5.2 billion decreased $60 million, or 1%, compared to the second quarter of 2023.

Total revenue of $5 $2 billion decreased $60 million or 1% compared to the second quarter of 2023.

Speaker 3: Net interest income declined $92 million, or 3%.

Net interest income declined $92 million or 3%.

Speaker 3: and our net interest margin was 2.71%, a decline of 8 bases.

And our net interest margin was 2.71% a decline of eight basis points.

Speaker 3: Non-interest income increased $32 million, or 2%, as higher fee income was partially offset by lower other non-interest income.

Noninterest income increased $32 million or 2% as higher fee income was partially offset by lower other noninterest income.

Speaker 3: Third quarter expenses decreased $127 million or 4% linked quarter. One was $129 million.

Third quarter expenses decreased $127 million or 4% linked quarter.

Provision was $129 million in the third quarter.

Speaker 3: and our effective tax rate was 15.5%, which included a favorable impact of certain tax matters in the third quarter.

And our effective tax rate was 15, 5%, which included a favorable impact of certain tax matters in the third quarter for.

Speaker 3: For the full year, we now expect our tax rate to be approximately 16.5%.

For the full year, we now expect our tax rate to be approximately 16, 5%.

Turning to slide eight we highlight our revenue trends.

Speaker 3: Third quarter revenue was down $60 million, or 1%, compared with the second quarter.

Third quarter revenue was down $60 million or 1% compared with the second quarter.

Speaker 3: Net interest income of $3.4 billion decreased $92 million, or 3%, as higher yields on interest earning assets were more than offset by increased funding.

Net interest income of $3.4 billion decreased $92 million or 3% as higher yields on interest, earning assets were more than offset by increased funding costs.

Speaker 3: The income was $1.7 billion and increased $67 million, or 4% linked quarter.

Fee income was $1 $7 billion in increased $67 million or 4% linked quarter.

Speaker 3: The primary driver of the increase in fee income was residential and commercial mortgage revenue which was up $103 million.

The primary driver of the increase in fee income was residential and commercial mortgage revenue, which was up $103 million. The majority of which were $97 million was related to an increase in evaluation of net mortgage servicing rights.

Speaker 3: the majority of which were $97 million, was related to an increase in the valuation of net mortgage services.

Partially offsetting this capital markets and advisory revenue decreased $45 million or 21% driven by lower trading revenue.

Speaker 3: Partially offsetting this, capital markets and advisory revenue decreased $45 million or 21% driven by lower trading revenues.

Speaker 3: M&A advisory activity continued to remain softer in the third quarter, despite robust piping.

M&A advisory activity continued to remain soft during the third quarter despite robust pipelines.

Speaker 3: Going forward, we do expect this activity to increase in the fourth quarter, which is included in our guidance that I will cover in a few minutes.

Going forward, we do expect this activity to increase in the fourth quarter, which is included in our guidance that I'll cover in a few minutes.

Speaker 3: Other non-interest income of $94 million declined $35 million linked quarter, driven by lower private equity revenue and included negative visa fair value adjustments totaling $51 million.

Other noninterest income of $94 million declined $35 million linked quarter, driven by lower private equity revenue and included negative visa fair value adjustments totaling $51 million.

Speaker 3: As a reminder, at September 30th, PNC owns 3.5 million Visa Class B shares with an unrecognized gain of approximately $1.3 billion.

As a reminder, at September 30th P. N T L three and a half million visa class B shares with an unrecognized gain of approximately $1.3 billion.

Turning to slide nine our third quarter expenses were down $127 million or 4% linked quarter, which in part reflected our increased CIP program.

Speaker 3: Turning to slide 9, our third quarter expenses were down $127 million or 4% linked quarter, which in part reflected our increased CIP program.

Speaker 3: And we generated 3% positive operating leverage on both a year-to-date and a linked quarter basis.

And we generated 3% positive operating leverage on both a year to date and a linked quarter basis.

Speaker 3: Importantly, every expense category remains stable or declined compared to the second quarter of 2023.

Importantly, every expense category remained stable or decline compared to the second quarter of 2023.

Our credit metrics are presented on slide 10.

Speaker 3: While overall credit quality remains strong across our portfolio, the pressures we anticipated within the commercial real estate office sector have begun to materialize.

While overall credit quality remains strong across our portfolio the pressures we anticipated within the commercial real estate office sector had begun to materialize.

Speaker 3: Non-performing loans increased $210 million, or 11%, linked quarter.

Nonperforming loans increased $210 million or 11% linked quarter.

Speaker 3: The increase was driven by multi-tenant office CRE, which increased $373 million, but was partially offset by a decline of $163 million in non-CRE and non-CRE.

The increase was driven by multi tenant office, CRE, which increased $373 million, but was partially offset by a decline of $163 million in non CRE npls.

Speaker 3: In regard to the CRE office portfolio, total criticized loans remained essentially flat quarter over quarter at 23%.

In regard to the CRE office portfolio total criticized loans remained essentially flat quarter over quarter at 23%.

Speaker 3: The difference this quarter is the migration of certain multi-tenant office loans to NPL stat.

The difference this quarter is the migration of certain multi tenant office loans to NPL status.

Speaker 3: which is an expected outcome as we work to resolve the occupancy and rate challenges inherent to this portfolio.

Which is an expected outcome as we work to resolve the occupancy and rate challenges inherent to this portfolio.

Ultimately, we expect future losses on this portfolio and we believe we have reserved against those potential losses accordingly.

Speaker 3: Ultimately, we expect future losses on this portfolio, and we believe we have reserved against those potential losses accordingly.

Speaker 3: As of September 30, our reserves on the office portfolio were 8.5% of total office.

As of September 30th our reserves on the office portfolio were eight 5% of total office loans and inside of that 12, 5% on the multi tenant portfolio.

Speaker 3: and inside of that 12.5% on the multi-tenant portfolio.

Speaker 3: Naturally, we'll continue to monitor and review our assumptions, especially in the higher rate environment to ensure they reflect the real-time market conditions.

Naturally we will continue to monitor and review our assumptions, especially in the higher rate environment to ensure they reflect the real time market conditions.

Speaker 3: and a full update of the portfolio is included in the appendix slide.

And a full update of the portfolio is included in the appendix slides.

Total delinquencies of $1.3 billion increased $75 million or 6% linked quarter, driven by higher consumer loan delinquencies.

Speaker 3: Total delinquencies of $1.3 billion increased $75 million, or 6% linked quarter, driven by higher consumer loan delinquencies.

Speaker 3: Net loan charge offs of $121 million, decline $73 million, or 38% linked quarter.

Net loan charge offs of $121 million declined $73 million or 38% linked quarter.

Our annualized net charge offs to average loans ratio was 15 basis points in the third quarter.

Speaker 3: Our annualized net charge-offs-to-average loans ratio was 15 basis points in the third quarter.

And our allowance for credit losses totaled $5.4 billion or 1.7% of total loans on September 30th.

Speaker 3: and our allowance for credit losses totaled $5.4 billion, or 1.7% of total loans, on September 30th, essentially stable with June 30th.

Essentially stable at June 30th.

Turning to slide 11.

Speaker 3: Turning to slide 11, from a capital perspective, we're well positioned with a CET1 ratio of 9.8% as of September 30.

From a capital perspective, we're well positioned with a CET one ratio of nine 8% as of September 30th.

Speaker 3: This slide illustrates the impact to our capital levels, assuming the Basel III endgame proposed rules were effective as of September 30.

This slide illustrates the impact to our capital levels, assuming the Basel III end game proposed rules were effective as of September 30th.

The inclusion of Aoc I reduces our ratio by approximately 190 basis points.

Speaker 3: The inclusion of AOCI reduces our ratio by approximately 190 bases.

And the impact of all other proposed Basel III endgame components are estimated to have an additional negative 40 to 50 basis point impact to our CET one.

Speaker 3: and the impact of all other proposed Basel III endgame components are estimated to have an additional negative 40 to 50 basis point impact to our CET1.

Speaker 3: Taken together, the current Basel III endgame proposal would increase our risk-weighted assets by approximately 3 to 4 percent.

Taken together the current Basel III endgame proposal would increase our risk weighted assets by approximately 3% to 4%.

Speaker 3: and our estimated fully phased in expanded risk based CET1 ratio would be approximately 7.4% which is above our current requirement of 7.4%

And our estimated fully phased in expanded risk based CET, one ratio would be approximately 7.4%, which is above our current requirement of 7%.

In light of the fluidity of the capital proposals or share repurchase activity remains on pause.

Speaker 3: In light of the fluidity of the capital proposals, our share repurchase activity remains on pause.

Speaker 3: We'll continue to evaluate the potential impact of the proposed rules and may resume share repurchases activity depending on market and economic conditions as well as other factors.

We will continue to evaluate the potential impact of the proposed rules that may resume share repurchases activity, depending on market and economic conditions as well as other factors.

Speaker 3: In regard to the long-term debt proposal, if the rule was effective at the end of the third quarter, our binding constraint would be the long-term debt to risk-weighted assets ratio at both the holding companies and the holding companies.

In regard to the longterm debt proposal if the rule is effective at the end of the third quarter, our binding constraint would be the long term debt to risk weighted assets ratio at both the holding company and the bank level.

Speaker 3: We estimate our current shortfall at the holding company and bank to be approximately $1 billion and $8 billion.

We estimate our current shortfall at the holding company and bank to be approximately $1 billion and $8 billion respectively.

And we expect to reach compliance at both the consolidated and bank level through our current funding plan as well as the restructuring of existing intercompany debt.

Speaker 3: And we expect to reach compliance at both the consolidated and bank level through our current funding plan as well as the restructuring of existing intercompany.

Speaker 3: We acknowledge and want to emphasize that proposals are still in their common period and the final rules are subject to change. That being said, we're well positioned to comply with the proposals as draft.

We acknowledge and want to emphasize that proposals are still in their common period and the final rules are subject to change that being said, we're well positioned to comply with the proposals as drafted.

Speaker 3: Slide 12 provides more detail on the $16 billion portfolio of capital commitment facilities we acquired from Signature Bridge Bank earlier this month.

Slide 12 provides more detail on the $16 billion portfolio of capital commitment facilities, we acquired from signature Bridge Bank earlier this month.

Speaker 3: P&T has been active in the capital commitment business for many years. We believe the acquisition will enhance our broader efforts in the private equity sponsor industry.

T N T has been active in the capital commitment business for many years, we believe the acquisition will enhance our broader efforts in the private equity sponsor industry.

Speaker 3: Signature's origination strategy was similar to PNC's, which is focused on building relationships with large and established fund managers.

Signatures origination strategy was similar to P. N fees, which is focused on building relationships with large and established fund managers as such we expect to retain 75% of the portfolio.

Speaker 3: As such, we expect to retain 75% of the portfolio.

This acquisition is financially attractive given the purchase price of 99% of par and the high credit quality of the portfolio.

Speaker 3: This acquisition is financially attractive given the purchase price of 99% of par and the high credit quality of the portfolio.

Speaker 3: Importantly, the transaction does not have a material impact to our capital ratios or tangible book value.

Importantly, the transaction does not have a material impact to our capital ratios or tangible book value per share.

Speaker 3: Slide 13 details our focus on controlling expenses.

Slide 13 details our focus on controlling expenses.

Speaker 3: As Bill mentioned, we remain diligent in our expense management efforts, particularly when considering the current revenue environment.

As Bill mentioned, we remain diligent in our expense management efforts, particularly when considering the current revenue environment.

Speaker 3: Our continuous improvement program has been in place for over a decade, and through this program we've utilized expense savings to fund our ongoing business growth and technology in that.

Our continuous improvement program has been in place for over a decade and through this program. We've utilized expense savings to fund our ongoing business growth and technology investments.

Speaker 3: Over the past 10 years through CIP, we've identified and completed actions to reinvest $3.7 billion in our company.

Over the past 10 years through CIP, we've identified and completed actions Siri invest $3.7 billion in our company.

As you know we have a 20 twenty-three CIP target of $450 million and we're on track to meet that target.

Speaker 3: As you know, we have a 2023 CIP target of $450 million, and we're on track to meet that target.

Unknown Executive: Well good morning and welcome to today's conference call for the P&C Financial Services Group.

Speaker 3: Looking to 2024, even though we've just begun our budgeting process, we do expect a 2024 annual CIP goal of similar magnitude to the 2023 pro-

Looking at 'twenty 'twenty four even though we just begun our budgeting process. We do expect a 2024 annual CIP goal of similar magnitude to the 2023 program.

Bryan Gill: I am Bryan Gill, the Director of Investor Relations for P&C, and participating on this call are P&C's Chairman, President and CEO Bill Demchak, and Rob Riley, Executive Vice President and CFO. Today's presentation contains four looking information, cautionary statements about this information, as well as reconciliation of non-gap measures are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website pnc.com under investor relations. These statements speak only as of October 13, 2023, and P&C undertakes no obligation to update them.

Speaker 3: Our CIP efforts over the years have allowed us to substantially invest in our company while still delivering low single-digit annual expense.

Our CIP efforts over the years have allowed us to substantially invest in our company, while still delivering low single digit annual expense growth.

Speaker 3: However, the current environment poses meaningful pressures necessitating expense control measures beyond our annual CIP program.

However, the current environment poses meaningful pressures necessitating expense control measures beyond our annual CIP program.

Speaker 3: As a result, we took a hard look at our organizational structure and identified opportunities to operate more efficiently through staff reductions, which we began implementing earlier this month.

As a result, we took a hard look at our organizational structure and identified opportunities to operate more efficiently through staff reductions, which we began implementing earlier this month.

Speaker 3: This initiative will decrease the workforce by 4% and is expected to reduce 2024 expenses by approximately $325 million.

This initiative will decrease the workforce by 4% and is expected to reduce 'twenty 'twenty four expenses by approximately $325 million.

Bill Demchak: Now I'd like to turn the call over to Bill. Thank you, Bryan, and good morning everyone. As you can see on the slide, we delivered strong results in the third quarter generating 1.6 billion in net income or $3.60 in diluted earnings per share.

Speaker 3: One time costs associated with this plan are expected to be approximately $150 million and will be incurred during the fourth quarter of 2020.

One time costs associated with this plan are expected to be approximately $150 million and will be incurred during the fourth quarter of 2023.

Bill Demchak: Rob's going to take you through the numbers in a moment, but I'd like to touch on a few highlights. First, in the challenging operating environment, we generated three points of positive operating leverage through discipline management. Our credit quality remains strong during the quarter, reflecting our thoughtful approach to managing risk, customer selection, and long-term relationship development, all of which have historically served us well in challenging economic cycles. Next, we strengthened our capital in liquidity positions even further during the quarter.

Speaker 3: We believe these actions will position PNC for stronger efficiency going forward. As a result, even though our budgeting cycle isn't complete, we have an objective to keep core expenses stable in 2024, which by definition would exclude the fourth quarter one-time charge.

We believe these actions will position PNC for stronger efficiency going forward as a result, even though our budgeting cycle isn't complete we have an objective to keep core expenses stable in 'twenty 'twenty, four which by definition would exclude the fourth quarter one time charges.

Speaker 3: In summary, PNC reported a solid third quarter 2023.

In summary, PNC reported a solid third quarter 2023.

Speaker 3: In regard to our view of the overall economy, we're expecting a mild recession starting in the first half of 2024, with a contraction in real GDP of less than 1%. We expect the federal funds rate to remain unchanged in the near term, between 5.25% and 5.5%.

In regard to our view of the overall economy, we're expecting a mild recession starting in the first half of 'twenty 'twenty four with a contraction in real GDP of less than 1%.

Bill Demchak: While we continue to monitor discussions regarding regulatory changes in these areas, based on our current estimates, we are well positioned to meet the proposed requirements without meaningful changes to how we operate. We continue to execute on our key strategic priorities, including our expansion market efforts and upgrading our digital capabilities, and we leveraged our strong balance sheet to take advantage of opportunities such as the signature bank loans that we recently acquired. Finally, we are focused on expense management, particularly in the current environment, and have taken actions to maintain discipline expense control.

We expect the federal funds rate to remain unchanged in the near term between 5.25% and five 5% through mid 'twenty 'twenty four when we expect the fed to begin cutting rates.

Speaker 3: Looking ahead, our outlook for the fourth quarter of 2023 compared to the third quarter of 2023 is as follows.

Looking ahead, our outlook for the fourth quarter of 2023 compared to the third quarter of 2023 is as follows.

Speaker 3: We expect average loans to be up approximately 3%, including the acquisition of the signature bank capital commitment facilities. Net interest income to be down 1-2%.

We expect average loans to be up approximately 3%, including the acquisition of the signature bank capital commitment facilities.

Net interest income to be down 1% to 2%.

Bill Demchak: We increased our continuous improvement goal last quarter from 400 million to 450 million, and we are on track to achieve that goal in 2023. Looking ahead, we expect to have CIP savings within a similar range for 2024, and as a reminder, we use savings from this program to fund investments in key growth markets and technology. In addition, earlier this month, we began executing on staff reductions, which will reduce our 2024 expenses by 325 million and will fall to the bottom line. All told, we are implementing more than 725 million of expense management actions that will have impact on 2024.

Fee income to be up approximately 1% has increased capital markets activity is expected to more than offset the impact of the elevated MSR hedge gains during the third quarter.

Speaker 3: as increased capital markets activity is expected to more than offset the impact of the elevated MSR hedge gains during the third.

Speaker 3: other non-interest income to be in the range of $150 million and $200 million, excluding net security.

Other noninterest income to be in the range of $150 million and $200 million, excluding net securities and visa activity.

Speaker 3: We expect total core non-interest expense to be up 3 to 4%, which excludes charges related to the workforce reduction.

We expect total core noninterest expense to be up 3% to 4%, which excludes charges related to the workforce reduction.

Speaker 3: Additionally, this guidance does not contemplate the pending FDIC special assessment, which could occur during the fourth quarter.

Additionally, this guidance does not contemplate the pending FDIC special assessment, which could occur during the fourth quarter.

Speaker 3: And we expect fourth quarter net charge offs to be between $200 and $250 million.

And we expect fourth quarter net charge offs to be between 200 and $250 million.

Bill Demchak: While decisions involving personnel are never easy, we believe they will help us more effectively and efficiently deliver for our customers and our stakeholders.

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

Thank you and at this time, if you'd like to register for a question. Please press. The one followed by the four on your telephone.

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Rob Riley: And we'll continue to be diligent in our expense management going forward, and with that, I'll turn it over to Rob.

Rob Riley: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide three and is presented on an average basis, and comparing to the second quarter. Lones were down 2% and averaged $320 billion, investment securities declined $1 billion or 1%. Cash balances at the Federal Reserve increased $7 billion to $38 billion, deposits of $423 billion to climb $3 billion or 1%. Board Funds increased $2 billion, primarily due to senior debt issuances near the end of the second quarter.

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One moment please for the first question.

Okay.

Speaker 4: And our first question is from the line of John Pankari with Evercore. Please go ahead.

And our first question is from the line of John Payne carry with Evercore.

Please go ahead.

Rob Riley: At quarter end, AOCI was a negative $10.3 billion, compared to a negative $9.5 billion that June 30th, reflecting higher interest rates. However, tangible book value increased to $78.16 per common share, as retained earnings growth exceeded the negative impact of AOCI. Common dividends in the quarter are totaled approximately $600 million, and we remain well capitalized with an estimated TET-1 ratio of 9.8% as of September 30th, 2023, which increased 30 basis points linked to quarter.

Good morning.

Hey, John Good morning.

On the just regarding the office a increase of non core non performers that you discussed a bit.

Speaker 5: On the just regarding the office increase in non-performers that you discussed a bit, um, can you just give us a little bit more detail? Is that more indicative of...

Could you just give us a little bit more detail is that more indicative of did.

Speaker 5: you see an acceleration in the deterioration of these credits that were noteworthy in the quarter and that necessitated the move to non-accrual or was this more of a function of an ongoing scrub of your portfolio as you're reevaluating collateral values or whatnot behind properties? And as you do that as well, can you maybe talk about some of the value depreciation you're beginning to see on some properties that have traded?

Did you see an acceleration in the deterioration of these credits that were noteworthy in the quarter and that necessitated the moved to non accrual or was this more of a function of our ongoing scrub of your portfolio as you are.

As you are reevaluating.

Rob Riley: Slide 4 shows our loans in more detail. Third quarter loans averaged $320 billion and increased $6.5 billion or 2% compared to the same period a year ago, reflecting growth in both commercial and consumer loans. Compared to the second quarter, average loan balances declined 2%, as growth in consumer was more than offset by a decline in commercial. Consumer loans grew approximately $500 million, reflecting higher residential mortgage and credit card balances. Commercial loans averaged $218 billion that declined of $5.5 billion, driven by lower utilization as well as paydowns outpacing new production. Loan yields increased 18 basis points to 5.75% in the third quarter, predominantly driven by the higher rate environment.

Collateral values or whatnot behind properties and as you do that as well can you maybe talk about some of the value depreciation you're beginning the city on some properties that are traded.

I guess, what I would say is what you're seeing is kind of our expected cycle through deteriorating credit. So our criticized list didn't really move we moved inside of that loans to nonperforming by the way I think they're actually all still accruing, we just kind of get there because we don't think they're re financeable.

Speaker 2: I guess what I would say is what you're seeing is kind of our expected cycle through deteriorating credit. So our criticized list didn't really move. We moved inside of that loans to nonperforming. By the way, I think.

Speaker 2: They're actually all still accruing. We just kind of get there because we don't think they're refinanceable in the current market. The move to non-performing from already being criticized comes about as you just watch cap rates creeping higher and adjust.

In the current market the moved to nonperforming from already being criticized.

It comes about is she just watch cap rates creeping higher.

Rob Riley: Slide 5 covers our deposits in more detail. Average deposits decreased $3 billion or 1% due to a decline in consumer deposits that was somewhat offset by a growth in commercial deposits. In regard to MIX, consolidated non-interest bearing deposits were 26% in the third quarter, down slightly from 27% in the second quarter, and consistent with our expectations. And we still expect the non-interest bearing portion of our deposits to stabilize in the mid-20% range.

And adjust the underlying value of the properties. Accordingly, So I don't I mean, none of this is a surprise we have heavy reserves against it we kind of saw it come in it's the big bulk of these properties moving through the snake as it were.

Speaker 2: the underlying value of the properties according to the

Speaker 2: So I don't I mean, none of this is a surprise. We have heavy reserves against it. We kind of saw it coming. It's it's the big bulk of these properties moving through the snake as it were.

And just the migration of the past.

We do expect losses as I said in my comments that we believe that we are appropriately reserved.

So theres a its not like Theres, some new scrubbing, John I mean, we've been at.

Speaker 2: There's no there's a it's not like there's some new scrubbing. John , I mean we've been asked

Rob Riley: Commercial non-interest bearing deposits represented 42% of total commercial deposits in the third quarter, compared to 45% in the second quarter. And our consumer deposit non-interest bearing MIX remains fable at 10%. Our rate paid on interest bearing deposits increased to 2.26% during the third quarter, up from 1.96% in the prior quarter. And as a September 30, our cumulative deposit beta was 41%, which was slightly better than our July expectation.

Speaker 2: We're live on every one of these properties every day. So it's not.

We're live on every one of these properties every day so it's.

It's not like we opened a drawer and found something we know exactly what each of these.

Monitoring enough.

Got it okay. Thanks, Bill and then.

Speaker 5: Got it. OK, thanks, Bill. And then separately on the expense side, can you really help us think about how the.

Separately on the expense side could you maybe help us think about how the.

Speaker 5: How that is the $325 million that you expect to fall to the bottom line from the headcount rationalization, how that would impact the growth rate that you expect overall for expenses in 2024 versus 2023? How should we think about that growth?

The 325 million that you expect to fall to the bottom line from the.

Head count rationalization.

Rob Riley: Slide 60 details our investment security and swap portfolios. Average investment securities of $140 billion decreased $1 billion or 1%, as curtailed purchase activity was more than offset by portfolio paydowns and maturities. The securities portfolio yield increased five basis points to 2.57%, reflecting new purchase yields of 5.5% and the runoff of lower yielding securities. As of September 30, the duration of investment securities portfolio was 4.2 years. Our received fixed swaps point to the commercial loan book totaled $35 billion on September 30.

How that would impact the growth rate you expect overall for expenses in 2024 versus 2023, how should we think about that group.

Speaker 3: Yes, so I mentioned in my opening comments when we walked down both the CIP that we anticipate implementing in 24, along with this workforce reduction, that our objective is to keep 24 expenses stable year over year. We haven't completed our budget process. In fact, we're at the beginning of our budget process, so we don't have a lot of 24 guidance for you other than that is our objective and that will be our expectation.

Yes, So I mentioned in my opening comments when we when we walked down both.

CIP that we anticipate implementing in 'twenty four along with its a workforce reduction that our objective is to keep 24 expenses stable year over year.

We havent completed our budget process in fact, we're at the beginning of our budget process. So we don't have a lot of 24 guidance for you other than that is our objective and that will be our expectation.

Speaker 2: John , the other thing, the reason we kind of put the continuous improvement in there is it's a number that we typically reinvest into our growth.

John the other thing.

Rob Riley: The weighted average received fixed rate of our swap portfolio increased 34 basis points to 2.07%. 1% and the duration of the portfolio was 2.4 years as of September 30th. Accumulated other comprehensive loss increased by approximately $800 million in the third quarter as a negative impact of higher rates more than offset paydowns and maturities during the quarter. Importantly, as lower rate securities and swaps roll off, we expect our securities yield to continue to increase, resulting in a meaningful improvement to tangible book value from AOCI accretion.

The reason, we kind of put the continuous improvement and theirs is.

It's a number that we typically reinvest into our growth businesses in the future of the company.

Speaker 2: So that's sort of what's been driving our investment game for the last bunch of years. That continues. What's new is basically dropping the run rate related to the person who started the first series.

So you know that's sort of what's been driving our investment game for the last bunch of years that continues.

What's new is basically.

Dropping the run rate related to personnel.

Ed just tightening of the ship.

Is it tougher revenue environment.

Speaker 5: Got it. Got it. I'm sorry if I got just one more on the signature acquisition of the signature loans, that is the 10 cents of accretion that you mentioned on that. Can you maybe walk us through the components of that, how you arrive at that amount?

Got it got it and I'm, sorry, if I could ask just one more on the signature acquisition of the signature loans that is the 10 cents of accretion that you mentioned on that can you maybe walk us through the components of that how do you arrive at that amount.

Rob Riley: Turning to the income statement on slide seven, for the first nine months of 2023 revenue grew 5% compared to the same period a year ago, reflecting higher interest rates and business growth. Non-interest expense grew 2% and was well controlled, despite a higher FDIC assessment rate and inflationary pressures. As a result, we generated 3% positive operating leverage and PPNR grew 9%. For the third quarter, net income was $1.6 billion or $3.60 per share.

Speaker 3: Oh, sure. That's basically the yield in terms of the portfolio that we purchased. They are short-term, about a year. So we do expect that 10 cents a share that we talked about in the fourth quarter and then going into 24. But when we get to 24, of course, we'll include that in our full year guidance.

Oh sure that's yeah, that's basically the yield in terms of the.

The portfolio that we purchased.

We they are short term about a year. So we do expect that 10 cents a share that we talked about in the fourth quarter and then.

Going into 'twenty four.

But when we get to 'twenty four of course, we'll include that in our full year guidance.

Rob Riley: Total revenue of $5.2 billion decreased $60 million or 1%, compared to the second quarter of 2023. Net interest income declined $92 million or 3%. And our net interest margin was 2.71% at a client of 8 basis points. Non-interest income increased $32 million or 2% as higher fee income was partially offset by lower other non-interest income. Third quarter expenses decreased $127 million or 4% linked quarter. Prevision was $129 million in the third quarter. And our effective tax rate was 15.5%, which included a favorable impact of certain tax matters in the third quarter. For the full year, we now expect our tax rate to be approximately 16.5%.

Got it okay. Thanks, Rob.

Sure.

Speaker 4: Our next question is from the line of Matt O'Connor with Deutsche Bank. Please go ahead.

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

Hey, guys. This is Nate Stein on behalf of Matt O'connor, just one quick follow up on the expense program.

Speaker 6: Hey guys, this is Nate Stein on behalf of Matt O'Connor. Uh, just one quick follow up on the expense program. Um, you talked about the 725 million total cost actions outside of the workplace reduction. Can you just talk about the, just the other

You talked about the 725 million total cost actions out so outside of the workplace reduction can you just talk about.

The.

The other areas of efficiencies you're investing in.

Amit.

Speaker 2: I mean, the workforce reduction is the specific number we mentioned of the $325 million inside of continuous improvement, you know, which we do every year. We're focused on contract renewals, on management layers, building, occupancy efficiencies, all the things you'd expect us to be focused on in the ordinary course running the business.

The workforce reduction reduction as a specific number we mentioned of the $325 million inside of continuous improvement.

Rob Riley: Turning to slide 8, we highlight our revenue trends. Third quarter revenue was down $60 million or 1%, compared with the second quarter. Net interest income was $3.4 billion decreased $92 million or 3%, as higher yields on interest earning assets were more than offset by increased funding costs. Fee income was $1.7 billion and increased $67 million or 4% linked quarter. The primary driver of the increase in fee income was residential and commercial mortgage revenue, which was up $103 million.

You know, which we do every year.

Just on contract renewals.

On managed across the players building.

Yes.

Occupancy.

Efficiencies all the things you'd expect us to be focused on in the ordinary course of running the business and that's a program that we've had in place as I mentioned for several years and it allows us to.

Speaker 3: And that's a program that we've had in place, as I mentioned, for several years, and allows us to, and has allowed us, to grow annual expenses in the low single-digit range, even with all those investments.

It has allowed us to grow annual expenses in the low single digit range.

Even with all of those investments and in point of fact, this year, we're pointing to 1% growth year over year.

Speaker 3: And in point of fact, this year we're pointing to 1% growth year over year.

Rob Riley: The majority of which were $97 million was related to an increase in the valuation of net mortgage servicing rights. Partially offsetting this, capital markets and advisory revenue decreased $45 million or 21%, driven by lower trading revenue. M&A advisory activity continued to remain soft during the third quarter, despite robust pipelines. Going forward, we do expect this activity to increase in the fourth quarter, which is included in our guidance that I will cover in a few minutes.

Speaker 3: twenty four or twenty three over twenty two uh... and a large part of that is because of our continuous improvement

24, 23 over 22.

And a large part of that is because of our continuous improvement program.

Speaker 6: Great, thanks. And then if I could just ask you a follow-up question on the capital market fees. So they came in weaker than expected this quarter. You talked about, I think, stable versus the last quarter. One of your larger peers reported stronger capital markets this morning. Can you just talk about the driver of this? Was it mostly mixed related? And then maybe touch on the outlook near term, given the macro outlook is better than a few months ago. Thanks.

Great. Thanks, and then if I could just ask a follow up question on the capital markets fees. So they came in weaker than expected. This quarter you had talked about I can stable versus the last quarter. One of your larger peers reported stronger capital markets. This morning can you just talk about the <unk>.

Driver of this was it mostly mix related and then maybe touch on the outlook near term given the macro outlook is better than a few months ago. Thanks.

Rob Riley: Other non-interest income of $94 million declined $35 million linked quarter, driven by lower private equity revenue and included negative visa fair value adjustments totaling $51 million. As a reminder, at September 30, P&C-03.5 million visa class B shares with an unrecognized gain of approximately $1.3 dollars.

Speaker 2: I didn't, I'm not sure what anybody else reported. My guess was that the trading line item was better than pure fees. But, you know, in our case, the bulk of our capital markets income come from various advisory fees from Harris Williams or Solberry or syndications and so forth. And while the pipelines remain, the

I didn't.

I'm not sure what what anybody else reported my guess was that the trading line item was better than peer fees, but.

You know in our case, the bulk of our capital markets income come from various advisory fees from Harris, Williams, or so Barry or syndications, and so forth and while the pipelines remain.

Rob Riley: Turning to slide 9, our third quarter expenses were down $127 million or 4% linked quarter, which in part reflected our increased CIP program. And we generated 3% positive operating leverage on both a year-to-date and a linked quarter basis. Importantly, every expense category remains stable or declined compared to the second quarter of 2023.

Speaker 2: you know, robust if not at record levels. The activity level, while there's been, you know, some green shoots, just hasn't been strong. Eventually it flows through.

You know robust if not at record levels the activity level, while there's been some green shoots just hasnt been strong eventually it flows through.

Speaker 2: But we're getting a little tired of predicting when it'll be.

But we're getting a little tired of predicting when it will be.

But yeah, I would add to that our capital market is weighted towards our M&A Advisory Harris Williams we.

Speaker 3: But I would add to that, our capital market is weighted towards our M&A advisory, Harris-Williams.

Speaker 3: We had a soft second quarter. At the end of the second quarter, our pipelines were higher than the first quarter, so we thought naturally that the third quarter would be higher, but it wasn't. So we find ourselves at the end of the third quarter with even higher pipelines.

Rob Riley: Our credit metrics are presented on slide 10. While overall credit quality remains strong across our portfolio, the pressures we anticipated within the commercial real estate office sector had begun to materialize. Non-performing loans increased $210 million or 11% linked quarter. The increase was driven by multi-tenant office CRE, which increased $373 million, but was partially offset by the decline of $163 million in non-CRE NPLs. In regard to the CRE office portfolio, total criticized loans remained essentially flat quarter over quarter at 23%.

We had a solid second quarter at.

At the end of the second quarter, our pipelines were higher than the first quarter. So we thought naturally the third quarter would be higher but it wasn't so we find ourselves at the end of the third quarter with even higher pipeline than.

Speaker 3: than we had at the beginning of the quarter. But inside of that,

Then we had at the beginning of the quarter.

But inside of that.

Speaker 3: a subset of the pipeline are signed deals, which that part is higher than it was at this point last quarter. So we do expect to see the lift and our expectations are that we get back to first quarter levels.

A subset of the pipeline are signed deals which that part is higher than it was at this point last quarter. So we do expect to see the lift and our expectations are that we'll get back to first quarter levels.

Thank you.

Our next question is from the line of Scotch differs with Piper Sandler. Please go ahead.

Speaker 4: Our next question is from the line of Scott Steiffers with Piper Sandler. Please go ahead.

Rob Riley: The difference this quarter is the migration of certain multi-tenant office loans to NPL status, which is an expected outcome as we were to resolve the occupancy and rate challenges inherent to this portfolio. Ultimately, we expect future losses on this portfolio, and we believe we have reserved against the potential losses accordingly. As of September 30, our reserves on the office portfolio were 8.5% of total office loans, and inside of that 12.5% on the multi-tenant portfolio. Naturally, we'll continue to monitor and review our assumptions, especially in the higher rate environment, to ensure they reflect the real-time market conditions.

Good morning, everyone. Thanks for taking the call.

Speaker 7: I wanted to ask sort of a broad question. Hey, kind of a broad question on NII. Are we getting to a point where that'll start to trough? So maybe, Rob, just sort of some of the puts and takes. You know, it seems like your deposit betas are coming in as expected or better.

Sort of a broad question I'm kind of a broad question on NII or are we getting to a point where that'll start to trough. So maybe rob just sort of some of the puts and takes there. It seems it seems like your deposit betas are coming in as expected or better.

Speaker 7: I know there should be some asset repricing as we look into next year, but some of the larger banks have been.

I know there should be some asset repricing as we look into next year, but you know some of the larger banks have been sort of vocal about the degree to which there is still over earning on NII, which I think is kind of kept these fears of a still bleeding out NII alive, some sort of industry wide, maybe just some thoughts on how you see things playing out for P&C in particular.

Speaker 7: sort of vocal about the degree to which they're still overearning on NII, which I think is, you know, kind of kept these fears of still bleeding out NII alive, sort of industry-wide. Maybe just some thoughts on how you see things playing out for PNC in particular.

Rob Riley: A full update of the portfolio was included in the appendix slides. Total delinquencies of $1.3 billion increased $75 million or 6% linked quarter, driven by higher consumer loan delinquencies. Net loan charge-offs of $121 million declined $73 million or 38% linked quarter. Our annualized net charge-offs to average loans ratio was 15 basis points in the third quarter. Our allowance for credit losses total $5.4 billion or 1.7% of total loans on September 30, essentially stable with June 30.

Speaker 2: I'll start. All of it ends up being dependent on what you think the Fed is going to do. Personally, I think the Fed is higher for longer, even higher for longer than the market expects. You know, on our official forecast, I guess we have two cuts towards the back.

I'll start.

All of it ends up being dependent on what you think the fed is going to do.

Personally I think the fed is higher for longer even higher for longer than the market expects you know in our official forecasts I guess, we have two cuts towards the bucket next year.

Speaker 2: As short rates stay higher, you will continue to see betas creep up.

As short rates stay higher you will continue to see betas creep up.

Speaker 2: uh... both because you know we're gonna reprice the back book and secondly because you'll

Both because.

We're going to reprice, the back book and secondly, because youre not.

Speaker 2: not on betas but just on the shift from non-interest bearing to interest bearing. So when that inflection point is, has in some ways to do the most with what's going on with the yield curve in the Fed, you know, as the curve continues to flatten by the long end selling off, all else equal, that helps, notwithstanding the marks on our existing bonds, it helps with the price we get on the roll down and reinvestment. So there's just too, there's too many variables in there but the basic notion...

Not on betas, but just on the shift from noninterest bearing to interest bearing so when that inflection point is has in some ways to do the most with what's going on with the yield curve and the fed.

Rob Riley: Turning to slide 11, from a capital perspective, we're well positioned with a CET-1 ratio of 9.8% as of September 30. This slide illustrates the impact to our capital levels, assuming the Basel III end-game proposed rules were effective as of September 30. The inclusion of AOCI reduces our ratio by approximately 190 basis points. In the impact of all other proposed Basel III end-game components, our estimated to have an additional negative 40 to 50 basis point impact to our CET-1.

As the curve continues to flatten by the long and sell it off.

Sequel that helps notwithstanding the marks on our existing bonds. It helps with the price we get on a roll down in <unk>.

Investment. So there is just too there's too many variables in there, but the basic notion.

Speaker 2: uh... that were you know at the inflection point uh... i think is entirely dependent on what happens with the fed in the coming year and you know we haven't done our budget yet so we're not going to call it

That we're at the inflection point.

It is entirely dependent on what happens with the fed in the coming year and we haven't done our budget yet so we're not going to call. It yeah I would just I would just add to that.

Rob Riley: Taken together, the current Basel III end-game proposal would increase our risk-weighted assets by approximately 3 to 4%. And our estimated fully phased-in expanded risk-based CET-1 ratio would be approximately 7.4%, which is above our current requirement of 7%. In light of the fluidity of the capital proposals, our share repurchase activity remains on pause. We'll continue to evaluate the potential impact of the proposed rules and may resume share repurchase his activity depending on market and economic conditions as well as other factors.

Speaker 3: I would just add to that, just observations. Deposits continue to decline. We expected that, but that decline is slowing. Betas have gone up, but the increase has slowed. In fact, in the third quarter, the actuals came in lower than what we expected for the first time since rates have been increasing rapidly. So things have slowed.

Yeah, just observations deposits continued to decline, we expect with that but that decline is slowing.

Betas have gone up but.

But the increase has slowed in fact in the third quarter. They came actuals came in lower than what we expected for the first time since rates have been increasing rapidly so things have slowed.

Speaker 3: as far as that trajectory is, and then obviously the inflection point issues that Bill just covered are valid.

As far as that trajectory is and then obviously the inflection point issues that they'll discovered.

Valid.

Mhm.

Speaker 7: Okay, perfect. Thank you. And then maybe a question on credit as well. I guess just in the last few weeks there have been a couple commercial hiccups in the industry in the shared national credit space. Just was hoping you might be able to remind us about PNC's exposure in this next phase and then just generalization, sort of how that portfolio quality compares to the rest of the book, how much you lead, etc.

Okay perfect. Thank you and then maybe maybe a question on credit as well I guess, they're just in the last few weeks have been a couple of commercial hiccups in the industry and the shared national credit space. Just was hoping you might be able to remind us about P.

Rob Riley: In regard to the long-term debt proposal, if the rule was effective as the end of the third quarter, our binding constraint would be the long-term debt to risk-weighted assets ratio at both the holding company and the bank level. We estimate our current shortfall at the holding company and the bank to be approximately $1 billion and $8 billion respectively. And we expect to reach compliance at both a consolidated and bank level through our current funding plan, as well as the restructuring of existing intercompany debt. We acknowledge and want to emphasize the proposals are still in their comment period and the final rules are subject to change. That being said, we're well positioned to comply with the proposals as drafted.

Pmt's exposure this next space.

Then just generalization sort of how the debt portfolio quality compares to the rest of the book how much your lead et cetera.

Speaker 3: Yeah, pretty good there. Pretty good there, Scott, in terms of credit. So, you know, all of the noise, so to speak, is in the commercial real estate office space that we spoke about. As far as the shared national credit results went, they're complete. They're represented in our numbers. And it was, you know, pretty benign in terms of total deals. Upgrades were more than downgrades, but they were a handful of each.

Yeah pretty pretty good there I'm pretty good there Scott in terms of credit. So you know all of the all of the noise. So to speak is in the commercial real estate office space that we spoke about as.

As far as the shared national credit results went they're complete that represented in our numbers and it was pretty benign.

In terms of total deals upgrades, where more than downgrades, but there were a handful of each.

Rob Riley: Slide 12 provides more detail on the $16 billion portfolio of capital commitment facilities we acquired from Signature Bridge Bank earlier this month. PNC has been active in the capital commitment business for many years. We believe the acquisition will enhance our broader efforts in the private equity sponsor industry. Signature's origination strategy was similar to PNCs, which is focused on building relationships with large and established fund managers. As such, we expect to retain 75% of the portfolio.

Alright, Thank you very much sir.

Speaker 4: Our next question is from the line of Gerard Cassidy with RBC. Please go ahead.

Our next question is from the line of Gerard Cassidy with RBC.

Please go ahead.

Okay.

Speaker 8: You guys gave us good color on the burn off of the securities portfolio.

You guys gave us good color on the burn off of the securities portfolio.

Speaker 8: And the question I had is, it looked like this quarter you put more up at the Fed, so what are you guys doing with the cash flows from the portfolio now in terms of where you're putting it and other securities? And then second, once the Basel-free end game is finalized, how do you think you guys will approach in carrying your securities? Will you carry less than available for sale or more? Can you share with us your thoughts there as well?

Rob Riley: This acquisition is financially attractive given the purchase price of 99% of par and the high credit quality of the portfolio. Importantly, the transaction does not have a material impact to our capital ratios or changeable book value per share.

One question I had is.

It looked like this quarter you put more up at the fed. So what are you guys doing with the cash flows from the portfolio now in terms of where you're putting in and other securities and then second once the Basel free end game is finalized how do you think you guys will approach in carrying your securities where you have.

Rob Riley: Slide 13 details are focused on controlling expenses. As Bill mentioned, we remain diligent in our expense management efforts, particularly when considering the current revenue environment. Our continuous improvement program has been in place for over a decade, and through this program, we've utilized expense savings to fund our ongoing business growth and technology investments. Over the past 10 years through CIP, we've identified and completed actions to reinvest $3.7 billion in our company. As you know, we have a 2023 CIP target of $450 million and we're on track to meet that target.

Carry less in available for sale or more can you share with us your thoughts there as well.

I guess just with the existing book is running down.

Speaker 2: I guess just with the existing book, it's running down. You know, we've run down the DV01 in our securities in swaps through the course of the entire year. We've had some purchases, but not to the extent we've had maturities. And we've been buying, I don't know what average yield is, but stuff that roughly carries flat versus leaving it in the Fed.

We've run down.

The D V O one in our securities and swaps through the course of the entire year, we've had some purchases.

But not to the extent that we've had we've had maturities in.

We've been buying I don't know what average yield is but stuff that roughly carries carries flat versus leaving it at the fed.

Rob Riley: Looking to 2024, even though we've just begun our budgeting process, we do expect a 2024 annual CIP goal of similar magnitude to the 2023 program. Our CIP efforts over the years have allowed us to substantially invest in our company while still delivering low single-digit annual expense growth. However, the current environment poses meaningful pressures necessitating expense control measures beyond our annual CIP program.

Speaker 2: the you know going forward the switch from available uh... for sale to held to maturity doesn't really affect anything it's an accounting entry so you know we'll keep some amount of available for sale to the extent we trade around that book but we don't trade around that book all that much and the rest will just buy into held to maturity which is by the way what we've been doing thus far that's right

Going forward the switch from available.

For sale to held to maturity doesn't really affect anything instead of kind of the country.

So you know, we'll keep some amount of an available for sale to the extent, we trade around that book, but we don't trade around that book all that much and the rest will just buy in the held to maturity, which is by the way what we've been doing thus far.

So that as rates have gone up.

Rob Riley: As a result, we took a hard look at our organizational structure and identified opportunities to operate more efficiently through staff reductions, which we began implementing earlier this month. This initiative will decrease the workforce by 4%, and is expected to reduce 20-24 expenses by approximately $325 million. One-time costs associated with this plan are expected to be approximately $150 million and will be incurred during the fourth quarter of 2023.

Speaker 3: There's a couple things to add. One of the uses of cash, Gerard, was the purchase of the signature loans. So that was our biggest outlay. Yeah, that was our biggest outlay. And then on the split, Bill has it right. Where we are now is probably about where we are plus or minus your views in terms of what, but where we got to holding it all to 100% of AFS was the tailoring, which has passed us. So we're back to sort of the normal split.

But there's a couple of things one of the one of the uses of cash Gerardo is the purchase of the signature loans. So that was right that was our biggest.

Biggest out letters yeah, Yeah that was our Vegas outlay and then on the split they'll have it right where we are now is probably about where we are plus or minus your views.

In terms of.

Is that where we're we got to a holding at all or is it a 100% of hff's was of the tailoring.

Which is past us show back we're back to sort of a normal split.

Rob Riley: We believe these actions will position PNC for stronger efficiency going forward. As a result, even though our budgeting cycle isn't complete, we have an objective to keep core expenses stable in 2024, which by definition would exclude the fourth quarter one-time charge.

Very good and then as a follow up you just mentioned about the purchase of the signature loans you guys are in a good position that you are not being impacted by Basel III end game R. W. A R. W. A inflation like some of the big money centers of course, do you think theres going to be opportunities for you guys to buy other poor.

Speaker 8: Very good. And then as a follow-up, you just mentioned about the purchase of the signature loans. You guys are in a good position that you're not being impacted by Basel 3N gain, RWA, RWA inflation like some of the big money centers, of course. Do you think there's going to be opportunities for you guys to buy other portfolios, not from the FDIC per se, but from some of your peers or banks that do mitigation strategies to get to these RWA targets they need to get to?

Rob Riley: In summary, PNC reported a solid third quarter of 2023. In regard to our view of the overall economy, we're expecting a mild recession starting in the first half of 2024 with a contraction in real GDP of less than 1%. We expect the federal funds rate to remain unchanged in the near term between 5.25% and 5.5% through mid 2024 when we expect the Fed to begin cutting rates.

Folios not not from the FDIC per se, but from some of your peers are banks that do mitigation strategies to get to these aren't W. A targets they need to get to.

Speaker 2: I suppose there could be. I don't know that we've actually seen any. We get pitched by everybody to execute one, which we have no need for. But the purchase side of that is actually pretty attractive. They're giving away a lot of economic.

I suppose there could be.

I don't know that we've actually seen any.

You know, we get pitched by everybody to execute one, which we have no need for but but the.

Rob Riley: Looking ahead, our outlook for the fourth quarter of 2023, compared to the third quarter of 2023, is as follows. We expect average loans to be up approximately 3%, including the acquisition of the signature bank capital commitment facilities. Net interest income to be down 1 to 2%, fee income to be up approximately 1%, has increased capital markets activity is expected to more than offset the impact of the elevated MSR hedge gains during the third quarter.

The purchase side of that is actually pretty attractive theyre, giving away a lot of economics. So it's actually a good thought ill go look around.

Speaker 3: Actually, good thought. I'll go look around. No, we have the capital flexibility to do it. And people know our telephone number.

The capital we have the capital flexibility to do it.

No our telephone number.

Speaker 8: Yeah, and then specifically it would be more in the CNI space or consumer, or do you guys have a preference should they call that phone number, Rob?

Yeah and then.

Typically it would be more in the C&I space or consumer or do you guys have a preference should they called that phone number Rob.

Speaker 9: It's look we're

[laughter] look were.

Rob Riley: Other non-interest income to be in a range of 150 million and 200 million dollars, excluding net securities and visa activity. We expect total core non-interest expense to be up 3 to 4%, which excludes charges related to the workforce reduction. Additionally, this guidance does not contemplate depending if the IC special assessment, which could occur during the fourth quarter. And we expect the fourth quarter net charge off to be between 200 and 250 million dollars.

Intelligent hopefully intelligent takers of risk at the right price.

Speaker 2: intelligent hopefully intelligent takers of risk at the right price got it

Yeah.

Evaluate what's out there.

Very good alright, thank you gentlemen.

Next question please.

Speaker 4: And as a reminder to register for a question, please press the 1 followed by the 4 on your telephone.

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

Speaker 4: Our next question is from the line of Bill Karkash with Wolf Research. Please go ahead.

Unknown Executive: And with that, Bill and I are ready to take your questions. Thank you. And at this time, if you would like to register for a question, please press the one net followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and would like to withdraw your registration, please press the one net followed by the three. If you're using a speaker phone, please lift your handset before entering a request. Once again, to register for a question, please press the one net followed by the four. One moment please for the first question.

Our next question is from the line of Bill car cash with Wolfe Research. Please go ahead.

Speaker 8: Thanks. Good morning Bill and Rob. I wanted to follow up on your office CRE comments.

Thanks, Good morning, Bill and Rob I wanted to.

Follow up on your office you are your comments.

Speaker 9: How much of an impact to debt service coverage are PNC customers experiencing from swaps that are rolling off, say in cases where they issued floating rate debt under SERP two to three years ago and put on swaps to lock in low fixed rates at the time but are now facing a significant reset as those swaps mature? I'm just curious how significant that maturing swap dynamic is inside of the portfolio and whether you feel like you have a good handle on that right now.

Sort of an impact to debt service coverage, our PSG customers experiencing from swaps that are rolling off say in cases, where they issue floating rate debt underserved two to three years ago.

Put on swaps to lock in low fixed rates at the time, but are now facing a significant reset.

Swaps mature mature I'm just curious if you know how significant that mature and swap dynamic is inside of the portfolio.

And whether you feel like you have a good handle on that dynamic.

John Pancari: And our first question is from the line of John Pankari with Evercore. Please go ahead. Good morning. On the, just regarding the office increase in non-performers that you discussed a bit, can you just give us a little bit more detail? Is that more indicative of, did you see an acceleration in the deterioration of these credits that were nowhere at the end of the quarter and that necessitated the move to not accrue?

Speaker 2: I don't know the answer to that. I would tell you though the bulk of our stuff and you see it in our maturity schedules, you know, we're kind of stabilization loans-ish project loans and so in that instance the hedge dynamics of somebody would put on that loan.

I don't know the answer to that.

Would tell you, though the bulk of our stuff and you see it in our maturity schedules.

Our kind of stabilization loans.

Project loans and so in that instance, the hedge dynamics of somebody would put on that loan.

Speaker 2: my experience would be less than what they would have done on a term.

My experience would be less than what they would've done on a term.

10 year C N B S alternative.

Speaker 2: So my guess is it's not. I think they're just in trouble for floating rate loans from lease rates going down from vacancies going up and from the rehab costs of redoing floors for capital improvements. Yeah. And just dropping the.

So my guess is it's not.

I think theyre just in trouble for floating rate loans from lease rates going down for vacancy is going up but from the rehab costs of redoing floors for capital improvements yeah.

John Pancari: Or was this one of a function of an ongoing scrub of your portfolio as you're, as you're re-evaluating, you know, collateral values or whatnot behind properties? And as you do that as well, can you maybe talk about some of the valued depreciation you're beginning in the city on some properties that have traded? Thanks.

It is just reflecting the value of the buildings.

Speaker 6: Understood. That's helpful. Thank you. And if I could follow up on that, if refinancing loans at current market rates would cause debt service coverage ratios to fall below one, can you discuss how much leeway there is?

Understood. That's helpful. Thank you and if I could follow up on that if refinancing loans at current market rates would cause debt service coverage ratios to fall.

No one can you discuss how much leeway there is.

Speaker 6: inside of PNC to refinance loans under potentially more favorable terms to allow debt service coverage ratios to remain satisfactory. And then maybe just more broadly across the industry, do you think so-called extended pretend dynamics could become pervasive, particularly since banks have made it clear they don't want to own office buildings and we've seen some commentary from regulators sort of urging banks to work with their customers.

Bill Demchak: I guess what I would say is what you're seeing is kind of our expected cycle through deteriorating credits. So our criticize list didn't really move. We moved inside of that loans to non-performing. By the way, I think they're actually all still accruing. We just kind of get there because we don't think they're refinanceable in the current market. The move to non-performing from already being criticized, you know, comes about as you just watch cap rates creeping higher, you know, and adjust the underlying value of the properties accordingly.

Side of P&C to refinance loans under a potentially more favorable terms to allow debt service coverage ratios to remain satisfactory and then maybe just more broadly across the industry.

Think so called extend and pretend dynamics could become pervasive, particularly since you know banks have made it clear. They don't you don't want to own office buildings, and we've seen some commentary from regulators sort of urging.

Banks to work with their customers.

Speaker 2: Well, I think the extend part is possible. I think the pretend part. Not too good. You know, we work with borrowers to figure out how to maximize the value of the property, because that's ultimately going to maximize the value of our loan. In some instances, that means taking the building and selling it. In some instances, that means getting more equity capital.

Alright.

To extend part as possible I think that pretend to part.

Not that it wasn't so good yeah right.

We work with borrowers to figure out how to.

Bill Demchak: So I don't, I mean, none of this is a surprise. We have heavy reserves against it. We kind of saw it coming. It's the big bulk of these properties moving through the snake as it were. And just the migrate, of the past. We do expect losses, as I said in my comments, but we believe that we're appropriately reserved. There's no, there's a, it's not like there's some new scrubbing, John, I mean, we've been, you know, we're live on every one of these properties every day. So it's, it's not like we opened a drawer and found something. We know exactly which each of these are and then we're monitoring and updating. Okay, thanks Bill.

Maximize the value of the property because that's ultimately going to maximize the value of our loan in some instances that means taking the building and selling it in some instances that means getting more equity capital.

Speaker 2: uh... you know extended a lot of the debt service coverage ratio we normally wouldn't under the theory that they can lease it up itself but each and every one of those decisions

Extending alone at a debt service coverage ratio, we normally wouldn't under the theory that they can lease it up itself, but each and every one of those decisions.

Speaker 2: is you know a decision tree based on what's the net present value of what we PNC can get against our loan. In any event if we do something that is uneconomic relative to the original.

As you know a decision tree based on what's the net present value of what we P&C can get against our loan in any event. If we do something that is uneconomic relative to the original loan that shows up.

Speaker 2: that shows up in our reserves or charge offs or so on and so forth. There's no pretend involved.

At our reserves or charge offs or so on and so forth. There's no pretend involved.

John Pancari: And then, separately on the expense side, can you really help us think about how the, how that, the 325 million, we expect to follow the bottom line from the head count rationalization. How that would impact the growth rate that you expect overall for expenses in 2024 versus 2023? How should we think about that growth?

Speaker 6: Understood. That's very helpful, Bill. Thank you. And if I could squeeze in one last one on the point about whether we're at an inflection point on deposit betas sort of depending on the Fed, does it suggest that we could see terminal beta expectations potentially drift higher relative to prior guidance, again, depending on how much higher for longer persists?

Understood. That's very helpful. Thank you and if I could squeeze in one last one on the point about whether we're at an inflection point.

Deposit betas sort of depending on the fed does it.

That suggests that we could see terminal beta expectations potentially drift higher relative to prior guidance again, depending on how much higher for longer persists.

Bill Demchak: Yeah, so, I'm sorry, I mentioned in my opening comments, when we, when we walk down both the CIP that we anticipate implementing in 24, along with this workforce reduction that our objective is to keep 24 expenses stable year over year. We haven't completed our budget process, in fact, for the beginning of our budget process, so we don't have a lot of 24 guidance for you other than that is our objective and that will be our expectation.

Speaker 2: Yeah, I think, and by the way, this isn't a forecast. I think it's just common sense, right? To the extent that we still have a back book of business, as does everybody that hasn't necessarily repriced. And if rates are pinned at 5% forever in time, you know, that beta will continue to go up. You know, it's a function of how high does the Fed go and how long do they stay there, and everybody's been wrong so far. So yeah, it's a possibility.

Yeah I think.

And by the way this isn't a forecast I think it's just common sense right to the extent that.

We still have a back book of business. It says does everybody that hasnt necessarily repriced in.

Rates are pinned at 5% forever in times.

You know that beta will will continue to go up.

It's a function of how high this effect go and how long do they stay there.

Bill Demchak: John, the other thing, you know, the reason we kind of put the continuous improvement in there is, you know, it's, it's a number that we typically reinvest into our growth businesses in the future of the company. So, you know, that's sort of what's been driving our investment game for the last bunch of years and that continues. What's, you know, what's new is basically, you know, dropping the run rate related to personnel and, and just tightening the ship and what is it, you know, tougher revenue environment.

Everybody has been wrong, so far so yes, it's a possibility.

Speaker 6: Understood. I wanted to ask you another one about the CFPB sort of open banking proposal bill, but I'll queue back up for that one. Thank you

Understood I wanted to ask you another one about the CFPB sort of open banking proposal, bill, but I'll I'll queue back up for that one thank you.

Speaker 4: Our next question is from the line of Peter Tarisi with Barclays. Please go ahead.

Our next question is from the line of Peter Troisi with Barclays. Please go ahead.

Speaker 10: Thanks very much for the disclosure on the long-term debt shortfalls in the slides. You talked about $10 billion of debt issuance annually, but do you anticipate needing to issue more than $10 billion to close the shortfalls that you disclosed in the slides?

Hi, Thanks, very much for the disclosure on the long term debt shortfalls in the slide.

John Pancari: Got it, got it, I'm sorry if I got to ask just one more on the signature acquisition of the signature loans, that is the 10th sense of accretion that you mentioned on that. Can you maybe walk us through the components of that? How do you arrive at that amount? Oh, sure, that's, you know, that's basically the yield in terms of the portfolio that we purchased. We, they are short term about a year, so, you know, we do expect that 10th sense of share that we talked about in the fourth quarter and then going into 24. But when we get to 24, of course, we'll include that in our full year guidance. Okay, thanks from, sure.

You talked about $10 billion of debt issuance annually.

But do you anticipate needing to issue more than $10 billion.

To close the shortfall that you disclosed in the slides or Kenny.

Speaker 10: can the $8 billion shortfall at the bank be met just by restructuring existing internal debt? And I guess the question really is, do you expect to issue debt at the holding company specifically to invest in the internal debt of the bank?

Can the can the $8 billion shortfall at the banking that test by restructuring.

Existing internal debt.

I guess I guess the question really is do you expect to issue debt at the holding company specifically to.

Invest in internal debt of the of the bank.

Speaker 3: Yeah, this is Rob. So good question. So you know, in regard to the long term debt, you know, our message is independent of the rules. As we resume a more conventional funding structure in terms of our debt to our deposits that was pre coded, we would be compliant.

Yeah. This is Rob yeah. So good question. So in regard to the long term debt.

Our message is independent of the rules.

As we resume a more conventional funding structure in terms of our debt to our deposits that was pre COVID-19, we would be compliant.

Nate Stein: Oh, our next question is from the line of Matt O'Connor with butcher bank. Please go ahead. Hey guys, this is Nate Stein on behalf of Matt O'Connor. Just one quick follow up on the expense program. You talked about the 725 million total cost actions outside of the workplace reduction. Can you just talk about the, just the other areas of efficiencies you're investing in? Thanks. I mean, I mean, the workforce reduction reduction is a specific number we mentioned of the 325 million inside of continuous improvement, you know, which we do every year. We're focused on contract renewals, manage the layers, building occupancy, efficiencies, all the things you'd expect us to be focused on.

Speaker 3: So that's the takeaway. In regard to how we get there, it's a combination of everything that you outlined. There will be issuances at the holding company as part of our ongoing plan that will then ultimately be papered down to the bank. But there's a lot of moving parts.

That's the takeaway and.

In regard to how we get there.

It's a combination of everything that you are that you outlined there will be issuances at the at the holding company as part of our ongoing plan that.

That will then ultimately the paper down to the bank, but theres a lot of there's a lot of moving parts there.

Speaker 3: The message is we'll get there and we would have gotten there independent of these rules.

The message is.

We will get there and we would have gotten there independent of these rules.

Okay. Thank you.

Sure.

Our next question is a follow up question from the line of Bill car cash with Wolfe Research. Please go ahead.

Speaker 4: Our next question is a follow-up question from the line of Bill Parkash with Wolf Research. Please go ahead.

Speaker 6: Yeah, thanks for taking my follow-up. So, Bill, I was hoping you could just share your thoughts on the CFPB's plans to propose an open banking rule. There's a view that open banking essentially forces the industry to hand over the keys to the customer relationship. You've talked in the past about sort of the dynamic of like passwords and all that kind of stuff, but I was just hoping you could speak broadly to that point or that topic.

Yes, Thanks for taking my follow up Bill I was hoping you could just share your thoughts on the Cfpb's plans to propose an open banking rule. There is a view that the open banking essentially forces the industry to hand over the keys to the customer relationship.

Bill Demchak: And that's a program that we've had in place as I mentioned for several years and allows us to and have allowed us to grow annual expenses in the low single digit range even with all those investments, and a point of fact, this year we're pointing to 1% growth year over year, 23 over 22 and a large part of that is because of our continuous improvement program. Great, thanks. And then if I could just ask you a follow-up question on the capital market see.

You've talked in the past about sort of the dynamic of like passwords, and all that kind of stuff, but I was just hoping you could you could speak broadly to that point or that topic.

Yeah I think.

Speaker 2: You know, what I've seen thus far out of CFPB commentary is they're largely focused on, you know, some of the right things. You know, make it easier for customers, agree with that. Secure data, agree with that. Don't allow data to be sold and commercialized without customer permission, agree with that. Make customers...

You know what I've seen thus far out of CFPB commentary is there they're largely focused on it.

Some of the right things make it easier for customers agree with that secured data agree with that don't allow data to be sold and commercialized without customer permission agree with that make customers.

Bill Demchak: So, they came in, we're then expected this quarter. You talked about I can stable versus the last quarter. One of your larger peers reported, stronger capital markets this morning. Can you just talk about the driver of this? Was it mostly mixed related? And then maybe touch on the outlook near term given the macro outlook is better than a few months ago. Thanks. I didn't. I'm not sure what what anybody else reported.

Speaker 2: you know, agree to specific data items that they want to share, you know, in a secure environment. So all of that stuff versus where we are today where it's a free-for-all and there's a lot of fraud, actually I'm in favor of. The notion of kind of open banking where somehow I can just lift and shift my account from one bank to another because now there's technology to do it, I'm not that afraid of that. It's more in.

Agreed as specific data items that they want a share.

A secure environment, so all of that stuff versus where we are today, where it's a free for all and Theres a lot of fraud.

Actually I'm in favor of.

The notion of kind of open banking, where somehow I can just lift and shift my account from one bank to another because now there's technology to do it.

Bill Demchak: My guess was that the trading line item was better than pure fees, but you know, in our case the bulk of our capital markets income come from various advisory fees from Harris Williams. They're sold very or syndications and so forth. And while the pipelines remain, you know, robust, if not at record levels, the activity level, whether it's been, you know, some green shoots just hasn't been strong. Eventually it flows through, but we're getting a little tired of predicting when it'll be.

I'm not that afraid of that it's more in.

Speaker 2: you know, the technology to allow it in a secure manner, independent of what rule is written, doesn't exist today.

The technology to allow it.

Secure manner dependent of what rule as written it doesn't exist today.

Speaker 2: uh... you know i i kind of look at what they're doing and hope it's a step in the right direction on security and the safety and soundness of customer information uh... leading to a reduction in fraud across the industry and i think you know who this gives a large ease of security...

Yeah.

I kind of look at what Theyre doing and hope it's a step in the right direction on security and the safety and soundness of customer information.

Leading to a reduction in fraud across the industry.

Bill Demchak: Yeah, I would add to that. Our capital markets is weighted towards our M&A advisory Harris Williams. We had a soft second quarter. At the end of the second quarter our pipelines were higher than the first quarter. So we thought naturally the third quarter would be higher, but it wasn't. So we find ourselves at the end of the third quarter with even higher pipelines than we had at the beginning of the quarter.

Right.

Soundbites, or that's where they're going.

Okay. That's helpful. I had heard something along the lines of some of the actions. We're taking are intended to make it easier for customers to quote unquote breakup with their banks.

Speaker 6: Okay, that's helpful. I had heard something along the lines of, you know, some of the actions they're taking are intended to make it easier for customers to, quote unquote, you know, break up with their banks.

Speaker 2: And so I was wondering if there was anything in the language. You mentioned how you're not worried about the ability to shift the relationship. I mean, look, at the end of the day, by the way, if that was if that happened, terrific. We compete every day and, you know, we have good customer service and great products. We'll be in that beneficiary practically.

And so I was wondering if that was there anything in the language you mentioned, how you're not worried about that.

Bill Demchak: But inside of that, you know, a subset of the pipeline are signed deals, which that part is higher than it was at this point last quarter. So we do expect to see the lift and our expectations are that we get back to first quarter levels. Thank you.

The ability to shift the relationship.

Look at the end of the day by the way if that was if that happened terrific. We compete every day.

You know we have good customer service and great products will be a net beneficiary practically.

Speaker 2: the technology to allow that to happen. So just think about the notion of okay.

The technology to allow that to happen. So so just.

Scott Difers: Our next question is from the line of Scott Difers with Piper Sandler. Please go ahead. Morning, everyone. Thanks for taking the call. I want to ask sort of a broad question. Hey, kind of a broad question on an AI. Are we getting to a point where that'll start to to trough. So maybe maybe you're just sort of some of the puts and takes. It seems like your depositators are coming in as expected or better.

Think about the notion of okay.

Now you have connected Apis that allow somebody to gather information and move information now you need to build a program that keeps track of the back book, while you open a new book on a checking account transfers balances on cards at all so eventually somebody will come up with a cool business model that.

Speaker 2: Now you have connected APIs that allow somebody to gather information and move information. Now you need to build a program.

Speaker 2: that keeps track of the back book while you open a new book on a checking account, transfers, balances on cards and all. So eventually somebody will come up with a cool business model that might be able to do that on the back of a lot of laws that allow it on the back of APIs that havenít been written yet on the back of technology that links all the banks in question together. But that hasnít happened yet.

Scott Difers: I know there should be some asset repricings we look in the next year. But you know, some of the larger banks have been sort of vocal about the degree to which they're still over earning on NII, which I think is, you know, kind of kept these fears of. Still bleeding out NII lives, sort of industry wide, maybe just some thoughts on how you see things that playing out for PNC in particular.

Might be able to do that on the back of a lot of clause that allowed on the back of Apis that havent been written yet on the back of technology that links all the banks in question together.

But that hasn't happened yet.

That's great very helpful. Thank you.

Yep.

Speaker 4: Our next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead. Hey Mike.

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

Bill Demchak: I'll start. Yeah, all of it ends up being dependent on what you think the Fed is going to do. Personally, I think, you know, the Fed is higher for longer, even higher for longer than the market expects, you know, in our official forecast. I guess we have two cuts towards the back at next year. As short rates stay higher, you will continue to see betas creep up both because, you know, we're going to reprice the back book.

Hey, Mike.

Sorry about that earlier.

So in terms of the decline in commercial loans is how much of that decline is due to softer demand and how much of that is deliberate as you look to shore up capital more than you previously would have intended.

Speaker 10: So in terms of the decline in commercial loans, how much of that decline is due to softer demand and how much of that is deliberate as you look to shore up capital more than you previously would have intended?

Well none of it's.

Bill Demchak: And secondly, because you'll just not on betas, but just on the shift from non-interest bearing to interest bearing. So when that inflection point is has in some ways to do the most with what's going on with the yield curve and the Fed. You know, as the curve continues to flatten by the long end selling off, all I'll sequel that helps not with standing the marks on our existing bonds. It's helps with the price we get on the roll down and reinvestment. There's just too many variables in there, but the basic notion that were, you know, at the inflection point, I think is entirely dependent on what happens with the Fed in the coming year.

Speaker 2: deliberate per se. You know, we've seen some drop in utilization. We've seen a drop in kind of refinance rate as people are, you know, think about a corporate loan revolver where it's a three year and every two years you renew it for the next three years. Everybody's kind of extending that under the hope that things are going to get better on spreads. So there's just been less activity. At the margin,

Deliberate per se.

We've seen some drop in utilization.

<unk> seen a drop in kind of refinance rate as people or if you think about corporate loan revolver, where it's a three year and every two years you renew it for the next three years everybody's kind of extending out under the hope that things are going to get better on spreads.

So there's just been less activity.

At the margin.

We are <unk>.

Speaker 9: extending less credit into credit only new relationships on the hope that we're going to get fees versus protecting our wallet where we already have a lot of fees and get cross sell. But that's kind of a at the margin. That's small thing. It's on the demand.

Extending less credit into credit only new relationships on the hope that we're gonna get fees versus protecting our wallet, where we already have a lot of fees and good cross sell but that's kind of at the margin that's small, but it's on the demand side.

Rob Riley: And, you know, we haven't done our budget yet, so we're not going to call it. I would just add to that, you know, just observation. So, you know, deposits continue to decline. We expect that, but that decline is flowing. Betas have gone up, but the increase has slowed. In fact, in the third quarter that came, actual came in lower than what we expected for the first time since rates have been increasing rapidly. So things have slowed, as far as that trajectory is, and then obviously the inflection point issues that Bill just covered are valid. Okay, perfect.

Scott Difers: Thank you.

Speaker 10: Okay, and you're very clear about the expense guidance and the tough actions you're taking with personnel.

Okay, Okay and.

We're very clear about the.

The expense guidance and the tough actions you're taking.

With personnel.

Speaker 10: Did you give an outlook for operating leverage over next year? Do you think the pace of expense...

Did you give an outlook for operating leverage over next year or do you think the pace of.

Expense decline will.

Speaker 10: faster than any decline in revenues and specifically to the fourth quarter, the SBNY loan acquisition looks like it adds a couple percent to your fourth quarter NII, but you're guiding down one to two percent. So that decline might be a little bit more than some had expected. It's more than you had expected. The quarter decline looks like two to four percent in the fourth quarter. Is that math correct?

It would be faster than any decline in revenues and specifically to the fourth quarter.

Scott Difers: And then maybe a question on credit as well. I guess there, you know, just in the last few weeks, there have been a couple commercial hiccups in the industry and the shared national credit space.

D S. P N wide loan acquisition it looks like it adds a couple of percent to your fourth quarter, NII, but you're guiding down 1% to 2% so that decline might be a little bit more than some had expected it to more than you had expected the quarters decline it looks like 2% to 4% in the fourth quarter is that math correct.

Bill Demchak: With something you might be able to remind us about PNC's exposure in this next space, and then just generalization sort of how that portfolio quality compares to the rest of the book, how much you lead, et cetera. Yeah, pretty good there. Pretty good there, Scott, in terms of credit. So, you know, all of the noise so to speak is in the commercial real estate office base that we spoke about. As far as the shared national credit results went, they're complete, they're represented in our numbers. And it was, you know, pretty benign in terms of total deals. Upgrades were more than downgrades, but they were a handful of each. All right.

Unknown Executive: Thank you very much. Sir.

Speaker 10: Why is it down maybe more than you thought? And the big question though is revenues versus expenses over the next year.

Why is it down maybe more than you thought and the Big question now is revenues first expenses over the next year.

Speaker 3: Do you want me to? I can. On the expense issue.

Thanks, Joe again.

Okay.

On the expense issue.

Speaker 3: We did say that we expect 24 expenses to be stable.

We did say that we expect 'twenty for expenses to be stable.

Speaker 3: And we haven't finished our budgeting cycle, so we can't really answer in terms of anything beyond that in 24. In regard to the NII and the fourth-quarter guide, it does include the signature acquisition, which we said was about 10 cents a share. Recall in the third quarter, we had expected 3 to 5 percent decline. We ended up down 3. So when we look to the fourth quarter, roll all that together, that's how we get down 1 to 2.

And we haven't finished our budgeting cycle. So it can't really answer in terms of anything beyond that in 'twenty four.

In regard to the NII in the fourth quarter guide.

It does include the signature acquisition, which we said was about 10 cents a share.

Gerard Cassidy: Our next question is from the line of deraard Cassidy with RBC. Please go ahead. You guys gave us good color on the burn off of the securities portfolio. And a question I had is it looked like this quarter, you put more up at the fed. So, what are you guys doing with the cash flows from the portfolio now in terms of where you're putting it and other securities? And then second, once the bottle free end game is finalized, how do you think you guys will approach in carrying your securities?

Recall in the third quarter, we had expected 3% to 5% decline we ended up down three.

We look to the fourth quarter roll all that together, that's how we get down one to two.

Got it okay. Thank you sure.

Our next question is from the line of Ken <unk> with Jefferies. Please go ahead.

Speaker 4: Our next question is from the line of Ken Usdin with Jefferies.

Speaker 11: Thanks. Good morning, guys. One follow up on the signature acquisition as well. So just wondering if you can provide a little more context on the portfolio, seeing the line that you're expecting to.

Thanks, Good morning, guys, one follow up on that on the signature acquisition as well. So I'm. Just wondering if you can provide a little more context on the portfolio seeing the line that youre expecting to hold onto or expecting to hold on the 75% of the relationships over time.

Gerard Cassidy: Will you carry less than available for sale or more? Can you share with us your thoughts there as well? I guess just with the existing book, it's running down. You know, we've run down, you know, the DVO one in our securities and swaps through the course of the entire year. We've had some purchases, but not to the extent we've had, we've had maturities and, you know, and we've been buying, I don't know what average yield is, but stuff that roughly carries, carries flat versus leaving it in the fed.

Speaker 11: hold on to expecting to hold on to 75% of the relationships over time. Are you bringing on new team members? Is there expenses along with that? And just anything you can help us in terms of like the duration of the loans? And is there just kind of a natural runoff that happens given, I think that they're generally a pretty short duration type of loan.

Yeah.

Are you, bringing on new team members as they are expenses, along with that and just anything you can help us in terms of like the duration of the loans and is there just kind of a natural runoff that happens given I think that they're generally a pretty short duration type of loan.

Yes.

Speaker 2: Yeah, it's de minimis ads of people that we're bringing on. You know, we're already in the business. We have the technology to be in the business. We know the clients. The rundown, you know, we're kind of saying, oh, 75% probably survives. Most of that is simply a function of where we have overlap with clients and the size hold that we'd want to have for a particular client. We'd syndicate more of it as we kind of right size our hold.

Yes.

It's de Minimis adds of people that we're bringing on you know we're already in the business. We have the technology to be in the business. We know the clients. The rundown you know, we're kind of saying about 75% probably survived most of that is simply a function of where we have overlap with clients and the size hold that we'd want to.

Gerard Cassidy: The, you know, going forward, the switch from available for sale to help the maturity doesn't really affect anything. It's an accounting entry. So, you know, we'll keep some amount and available for sale to the extent we trade around that book, but we don't trade around that book all that much, and the rest will just buy and down the maturity, which is, by the way, what we've been doing thus far, since rates have gone up.

Have for a particular client would indicate more of it.

As we kind of rightsize our hold.

Speaker 2: uh... there may be you know inside of that book a business and for people that we would choose not to read

There may be inside of that book of business, a handful of people that we would choose not to renew but but the credit quality is pristine we know we underwrote every.

Gerard Cassidy: What does a couple of things add to that? One of the uses of cash, Gerard was the purchase of the signature loans, so that was our biggest out there. Yeah, that was our biggest out there. And then on the split, Bill has it right. You know, where we are now is probably about where we are plus or minus your views in terms of, but, you know, where we got to holding it all until 100% of AFS was the tailoring, which has passed us. So, we're back to, we're back to sort of the normal split.

Speaker 2: credit quality is pristine. We know we underwrote every

Fund that is in that.

Speaker 3: You know, and through time you would expect that as they mature we'll renew and some period of time out a couple years we'll end up with 75% of the notional that we started with and you'll have no clue between now and then how much it was. But you know that's right. There's a lot of de minimis expenses involved with it and we're excited about it.

And through time, you would expect that as they mature will renew in some period of time out a couple of years, we'll end up with 75% of the notional that we started with and you'll have no clue between now and then.

How much it was but.

That's right de Minimis expenses, it involved with it and we're excited about it.

Yeah, that's a fair point on we won't know, that's where I was trying to ask.

Speaker 2: Yeah, that's a fair point on we won't know that's what I was trying to ask. The second question, but to be clear, it's, it's, I mean, it'll be lost inside of our book of business. Yeah, it becomes part of our CNI balance.

Bill Demchak: Very good. And then as a follow up, you just mentioned about the purchase of the signature loans. You guys are in a good position that you're not being impacted by Basel 3N game, you know, RWA RWA inflation, like some of the big money centers, of course. Do you think there's going to be opportunities for you guys to buy other portfolios, not not from the FDIC per se, but from some of your peers or banks that do mitigation strategies to get to these RWA targets they need to get to?

Yeah.

The second question.

But to be clear it's yeah.

It'll be lost inside of our book of business, Yes sounds right yes.

It becomes part of our C&I balances.

Completely completely understood.

Speaker 11: Completely completely understood. The second question I had, Bill, is you mentioned, you know, in a higher long for environment, we got to see what the Fed does in terms of, you know, where deposit betas and mix goes on the asset side. However, though, you know, can you help us understand what happens in terms of fixed rate loan repricing versus and how much you more you might still have left in that versus obviously, when we get to a peak in Fed funds, we'll know that the variable rates of you know, we'll have gotten there.

Yeah.

The second question I had bill as you mentioned, we had a higher long for environment, we got to see what the fed does in terms of.

Our deposit betas in Mexico on the asset side, however, though.

Can you help us understand what happens in terms of fixed rate loan repricing versus and how much more you might still have left in that versus obviously, when we get to a peak in fed funds will know that the variable rates of wolfcamp in there.

Bill Demchak: Yeah, I suppose there could be. I don't know that we've actually seen any. You know, we get pitched by everybody to execute one, which we have no need for. But the purchase side of that is actually pretty attractive. They're giving away a lot of economics. So it's actually a good thought. I'll go look around. No, we have the capital flexibility to do it. And people know our telephone number. Yeah. And specifically, it would be more in the CNI space or consumer. Do you guys have a preference? Should they call that phone number, Rob? It's, it's, look, we're intelligent. Hopefully intelligent takers of risk at the right price. Got it. You can evaluate what's out there. Very good.

Yeah, So we have.

Speaker 2: you know beyond our securities book and swaps which obviously will reprice over the next several years we have

I mean, you know beyond our securities book in swaps, which obviously, we will re price over the next several years we have.

I don't know the percentage off the top of my head.

Speaker 2: percentage of our loan book either fixed rate to begin with think of an auto loan or with swaps on top of it floating rate loan we swap to fix and those fixed rate loans and swaps are shorter duration typically than what we have in the securities book and there's a lot of dry powder there that will reprice. You know we are.

Percentage of our loan book either fixed rate to begin with think about auto loan or with swaps on top of it floating rate loan we swapped to fix and.

Those fixed rate loans and swaps or shorter duration.

Typically than what we have in the Securities book, and there's a lot of dry powder, there that will reprice.

We are.

Speaker 2: you know back to this notion that hey we're out there competing in growing this company you know we will be originating those loans uh... as a reprice we're not dumping assets and getting out of things it's going to you know shrink that that total volume that's on our books

Back to this notion that hey, we're out there competing and growing this company, we will be originating those loans as they reprice, we're not dumping assets and getting out of things its going to shrink the total volume that's on our book.

Unknown Executive: All right. Thank you, gentlemen.

Unknown Executive: Next question, please. And as a reminder to register for a question, please press the one that followed by the four on your telephone.

Yeah, No no I understand and I would think it would be a net net positive as an offset to what have you.

Speaker 2: Yeah, that's why I understand. I would think it would be a net, you know, a net positive as an offset. A little bit. You have the competing parts, right? We're going to re-price into fixed rate assets fighting re-prices of our liabilities. At some point, you know, that's going to cross and banks are going to, you know, grow NII.

Bill Carcache: Our next question is from the line of Bill Carcache with Wolf Research. Please go ahead. Thanks. Good morning, Bill Rob. I wanted to follow up on your office, your e-commerce. How much of an impact that service coverage are P&C customers experiencing from swaps that are rolling off saying cases where they issued floating rate debt underserved two to three years ago. And put on swaps to lock in low fixed rates at the time, but are not facing a significant reset as those swaps mature mature. I'm just curious, you know, how significant that mature and swap dynamic is inside of the portfolio. And whether you feel like you have a good handle on that dynamic.

You have the competing parts right, we're gonna have repricing them as a fixed rate assets fighting re prices over liabilities at some point that you know that's going to cross and banks are going to.

You know grow NII.

Speaker 2: at high percentages. I just can't tell you when that is yet. We haven't done our budget naming until next year.

Hi, percentages I just can't tell you when that is yet and we haven't done our budget next year.

Yeah, that's fair Okay. Thank you.

And there are no further questions on the phone lines at this time.

Okay, well, thank you everybody and thanks for participating if you have any follow up questions. Please feel free to reach out to the IR team. Thank.

Speaker 1: Okay, well thank you everybody. Thanks for participating. If you have any follow-up questions, please feel free to reach out to the IR team. Thanks.

Thank you.

That does conclude the conference call for today and we do thank you for your participation.

Speaker 4: That does conclude the conference call for today, and we do thank you for your participation.

Bill Demchak: I don't know the answer to that. I would tell you that the bulk of our stuff, and you see it in our maturity schedules, you know, we're kind of stabilization loans, issue project loans. And so in that instance, the the hedge dynamics of somebody would put on that loan, my experience would be less than what they would have done on a, you know, a term, you know, 10 years CNBS alternative. So my guess is it's not I think they're just in trouble for floating rate loans from lease rates going down from vacancies going up, but from the rehab costs of, you know, redoing floors for the government. Yeah. You're just not talking the value of the buildings. Understood that helpful.

Bill Demchak: Thank you.

Okay.

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Okay.

Hum.

Yes.

Uh huh.

Sure.

[music].

Bill Demchak: And if I can follow up on that, if refinancing loans at current market rates would cause debt service coverage ratios to fall below one. Can you discuss how much leeway there is inside of PNC to refinance loans under potentially more favorable terms to allow debt service coverage ratios to remain satisfactory. And then maybe just more broadly across the industry, do you think, you know, so-called extended pretend dynamics could become pervasive, particularly since, you know, banks have made it clear they don't want to own office buildings.

Okay.

Yes.

Right.

Okay.

Sure.

[music].

Bill Demchak: And we've seen some commentary from regulators sort of urging, you know, banks to work with their customers. Well, I think the extent part is possible. I think the pretend part, not good, we work with borrowers to, you know, figure out how to maximize the value of the property because that's ultimately going to maximize the value of our loan. In some instances, that means taking the building and selling it in some instances, that means getting more equity capital, you know, extending a loan or the debt service coverage.

Bill Demchak: We normally wouldn't under the theory that they can lease it up itself, but each and every one of those decisions is, you know, a decision tree based on what's the net present value of what we PNC can get against our loan. In any event, if we do something that is uneconomic relative to the original loan, that shows up in our reserves or charge offs or so on and so forth, there's no pretend involved.

Bill Demchak: Understood. That's very helpful, Bill.

Bill Demchak: Thank you.

Bill Carcache: And if I could squeeze in one last one on the point about whether we're at an inflection point on, you know, deposit betas sort of depending on the Fed, does the court really suggest that we could see terminal beta expectations, potentially drift higher relative to prior guidance, again, depending on how much higher for longer persists. Yeah, I think, and by the way, this isn't a forecast. I think it's just common sense, right?

Bill Carcache: To the extent that we still have a backbook of business as does everybody that hasn't necessarily repriced and if rates are pinned at 5% forever in time, you know, that beta will continue to go up. You know, it's a function of how high does the Fed go and how long do they stay there and everybody's been wrong so far. So yeah, it's a possibility. Understood.

Bill Carcache: I wanted to ask you another one about the CFPB sort of open banking proposal bill, but I'll queue back up for that one. Thank you. Yeah.

Peter Clarice: Our next question is from the line of Peter Clarice with Barclays. Please go ahead. Thanks very much for the disclosure on the long-term debt shortfalls in the slides.

Rob Riley: You know, you talked about 10 billion of debt issuance annually, but you anticipate needing to issue more than 10 billion to close the shortfalls that you disclosed in the slides or can the 8 billion dollar shortfall of the bank be met just by restructuring existing internal debt. And I guess the question really is do you expect the issue debt at the holding company specifically to invest in the internal debt of the bank?

Rob Riley: Yeah, this is so good question. So, you know, in regard to the long-term debt, you know, our message is independent of the rules as we resume a more conventional funding structure in terms of our debt to our deposits that was pre-covid, we would be compliant. So that's the takeaway. In regard to how we get there, it's a combination of everything that you outlined. There will be issuances at the holding company as part of our ongoing plan that will then ultimately be papered down to the bank, but there's a lot of moving parts there. The message is we'll get there and we would have gotten there independent of these rules.

Rob Riley: Okay, thank you. Sure.

Bill Carcache: Our next question is a follow-up question from the line of Bill Carcache with Wolf Research. Please go ahead. Yeah, thanks for taking my follow-up.

Bill Demchak: I was hoping you could share your thoughts on the CFPB's plans to propose an open banking rule. There's a view that open banking essentially forces the industry to hand over the keys to the customer relationship. You know, you've talked in the past about sort of the dynamic of like passwords and all that kind of stuff, but it was just hoping you could you could speak broadly to that point or that topic.

Bill Demchak: Yeah, I think, you know, what I've seen thus far out of CFPB commentary is they're largely focused on, you know, some of the right things, you know, make it easier for customers to agree with that. Secure data, agree with that, don't allow data to be sold and commercialized without customer permission, agree with that, make customers, you know, agree to specific data items that what they want to share, you know, in a secure environment.

Bill Demchak: So all of that stuff versus where we are today where it's a free for all and there's a lot of fraud. Actually, I'm in favor of the notion of kind of open banking where somehow I can just lift and shift my account from one bank to another because now there's technology to do it. I'm not that afraid of that. It's more in, you know, the technology to allow it in a secure manner, dependent of what rule is written doesn't exist today.

Bill Demchak: And you know, I kind of look at what they're doing and hope it's a step in the right direction on security and the safety and soundness of customer information leading to a reduction in fraud across the industry. And I, you know, the sound bites are, that's where they're going.

Bill Demchak: Okay, that's helpful. I had heard something along the lines of, you know, some of the actions are taking our intended to make it easier for customers to quote unquote, you know, break up with their banks. And so I was wondering if there was anything in the language. You mentioned how you're not worried about the ability to shift the relationship. Look, at the end of the day, by the way, if that happened, terrific.

Bill Demchak: We compete every day. And, you know, we have good customer service and great products will be in that beneficiary. Practically, the technology to allow that to happen. So just, you know, think about the notion of, okay, now you have, you know, connected APIs that allow somebody to gather information and move information. Now you need to build a program that keeps track of the back book while you open a new book on a checking account, transfers, balances on cards and all.

Bill Demchak: So eventually, somebody will come up with a cool business model that might be able to do that on the back of a lot of laws that allow it on the back of APIs that haven't been written yet on the back of technology that links all the banks in question together. But that hasn't happened. Good, yeah.

Bill Demchak: That's great, very helpful. Thank you.

Mike Mayo: Yeah. Our next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead. Hey, Mike. Sorry about that earlier. So in terms of the decline in commercial loans is how much of that decline is due to softer demand and how much of that is[inaudible] Under the hope that things are going to get better on spreads. So there's just been less activity at the margin. You know, we are extending less credit into credit only new relationships on the hope that we're going to get fees versus protecting our wallet where we already have a lot of fees and get cross sell. But that's kind of a. That's not the margin. That's small thing. It's on the demand. Yeah. Okay.

Mike Mayo: And you're very clear about the expense guidance and the tough actions you're taking with personnel. Did you give an outlook for operating leverage over next year? Do you think the pace of expense decline will be faster than any decline in revenues? And specifically to the fourth quarter, the SBNY loan acquisition looks like it adds a couple percent to your fourth quarter NII, but you're guiding down one to two percent. So that decline might be a little bit more than some had expected.

Mike Mayo: It's a more than you had expected. You know, the quarter decline looks like two to four percent in the fourth quarter. Is that math correct? Why is it down maybe more than you thought? And the big question now is revenues versus expenses over the next year? I do. I mean, again, on the expense issue, you know, we did say that we expect 24 expenses to be stable. And we haven't finished our budgeting cycle.

Mike Mayo: So we can't really answer in terms of anything beyond that in 24. In regard to the NII and the fourth quarter guide, it does include the signature acquisition, which we said was about 10 cents a share. It recall in the third quarter, we had expected three to five percent decline. We ended up down three. So when we look through the fourth quarter, roll all that together. That's how we get down one to two. Got it. Okay. Thank you.

Mike Mayo: Sure. Our next question is from the line of can it was done with Jeffries. Please go ahead. Thanks, morning, guys. One follow-up on the signature acquisition as well. So, I'm just wondering if you can provide a little more context on the portfolio, seeing the line that you're expecting to hold on to, or expecting to hold on to 75% of the relationships over time. Are you bringing on new team members? Is there expenses along with that?

Mike Mayo: And just anything you can help us in terms of like the duration of the loans? And is there just kind of a natural, you know, run off that happens, given I think that they're generally a pretty short duration type of loan?

Bill Demchak: Thanks. Yeah, it's the minimum as ads of people that we're bringing on. You know, we're already in the business, we have the technology to be in the business, we know the clients. The rundown, you know, we're kind of saying 75% probably survives. Most of that is simply a function of where we have overlap with clients and the size hold that we want to have for a particular client. And we'd syndicate more of it as we kind of right size our hold.

Bill Demchak: There may be, you know, inside of that book of business, a handful of people that we would choose not to renew, but the credit quality is pristine. We know we underwrote every fund that is in that. You know, in true time, you would expect that is they mature will renew and some period of time out a couple of years will end up with 75% of the notion that we started with and you'll have no clue between now and then.

Bill Demchak: But that's right, the minimum expenses it involved with it and we're excited about. Yeah, that's fair point on we won't know that's what I was trying to ask. But to be clear, it's I mean, it'll be lost inside of our book of business. Yeah, it becomes part of RC and Ibellis. Completely, completely understood.

Bill Demchak: The second question I had Bill is you mentioned, you know, in a higher long term environment, we got to see what the Fed does in terms of, you know, where deposit bait is and mix goes on the asset side. However, though, you know, can you help us understand what happens in terms of fix rate loan repricing versus and how much you might still have left in that versus. Obviously, when we get to a peak in Fed funds, we'll know that the variable rates have, you know, we'll have gotten there.

Bill Demchak: Yeah, so we have, I mean, you know, beyond our securities book and swaps, which obviously will reprice over the next several years, we have. I don't know the percentage off the top. I had percentage of our loan book either fixed right to begin with think of not alone or with swaps on top of it. Floating rate loan, we swapped a fix and those fixed rate loans and swaps are shorter duration, typically than what we have in the securities book.

Bill Demchak: And there's a lot of dry powder there that'll reprice. You know, we are back to this notion that, hey, we're out there competing and growing this company, you know, we will be originating those loans. As a reprice, we're not dumping assets and getting out of things. It's going to, you know, shrink the total volume that's on our book. Yeah, that's why I understand. I would think it would be a net, you know, a net positive as an offset.

Bill Demchak: A little bit. You have the competing parts, right? We're going to reprice ends of fixed rate assets, fighting reprices of our liabilities. At some point, you know, that's going to cross and banks are going to, you know, grow NII, and High percentages. I just can't tell you when that is yet, and we haven't done our budget next year.

Mike Mayo: Yeah, that's fair. Okay, thank you.

Unknown Executive: And there are no further questions on the phone lines at this time.

Unknown Executive: Okay, well thank you everybody. Thanks for participating.

Unknown Executive: If you have any follow-up questions, please feel free to reach out to the IR team. Thanks.

Unknown Executive: Thank you.

Unknown Executive: That does conclude the conference call for today and we do thank you for your participation.

Thank you.