Q1 2024 The PNC Financial Services Group Inc Earnings Call

April 16, 2024

Operator: Greetings and welcome to the PNC Financial Services Group earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If you would like to ask a question during this time, please press star 1 on your telephone keypad. If you would like to withdraw your question, please press star 2 on your telephone keypad. If anyone should require operator assistance during the conference, please press star zero on your telephone.

Greetings and welcome to the PNC Financial Services Group earnings Conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If you would like to ask a question. During this time. Please press star one on your telephone keypad, if you would like to withdraw your.

A question. Please press star two on your telephone keypad, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Bryan Gill. Thank you Brian you may begin.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may begin.

Bryan K. Gill: 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 PNC, and participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Today's presentation includes forward-looking information.

Bryan K. Gill: Well good morning, and welcome to today's conference call for the PNC Financial services group.

Bryan K. Gill: Hi, I'm, Brian Gill, the director of Investor Relations for P&C and participating on this call are Pnc's, chairman and CEO Bill them check and Rob Reilly Executive Vice President and CFO. 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.

Bryan K. Gill: 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. These statements speak only as of April 16th, 2024, and PNC undertakes no obligation to update them. Now, I'd like to turn the call over to Bill

Bryan K. Gill: Filings and other investor materials.

Bryan K. Gill: These are all available on our corporate website PNC com under Investor Relations. These statements speak only as of April 16th 2024, and PNC undertakes no obligation to update them now I'd like to turn the call over to Bill.

William Demchak: Thank you, Bryan, and good morning, everyone. In the first quarter, we executed well and delivered solid financial results. We generated $1.3 billion in net income, and adjusting for the FDIC special assessment, $3.36 per share. Rob will provide details on our results in a moment, but I'll start with a few thoughts. First, we continued to grow our business. In the first quarter, we added new customers across our segments and increased deposits on a spot basis.

William Demchak: Thank you, Brian and good morning, everyone in the first quarter, we executed well and delivered solid financial results. We generated $1 3 billion in net income and adjusted for the FDIC Special assessment $3.36 per share.

William Demchak: Rob will provide details on our results in a moment, but I'll start with a few thoughts first we continued to grow our business in the first quarter, we added new customers across our segments and increased deposits on a spot basis, we're continuing to invest heavily in our franchise to drive growth and gain share, particularly in our retail banking technology platform our payments business.

William Demchak: We're continuing to invest heavily in our franchise to drive growth and gain share, particularly in our retail banking technology platform, our payments businesses, and our expansion markets. To that end, in the first quarter, we announced a multi-year investment of nearly a billion dollars in our branch network to renovate more than 1,200 locations and open new branches in key locations, including Austin, Dallas, Denver, Houston, Miami, and San Antonio.

William Demchak: As in our expansion markets to that end in the first quarter, we announced a multi year investment of nearly $1 billion in our branch network to renovate more than 200 locations and opened new branches in key locations, including Austin, Dallas, Denver, Houston, Miami and San Antonio.

William Demchak: Second, expenses were well-managed during the quarter. As we've indicated, expense discipline remains a top priority, and we are on track to maintain stable core expenses in 2024. Third, credit quality remained stable during the quarter.

William Demchak: Second expenses were well managed during the quarter as we've indicated expense discipline remains a top priority and we are on track to maintain stable core expenses in 2024.

William Demchak: Third credit quality remained stable during the quarter. The office portfolio remains an area of focus, but we are adequately reserved overall and particularly with respect to CRE. We believe our thoughtful approach to managing risk customer selection and long term relationship development will continue to serve us well.

William Demchak: The office portfolio remains an area of focus, but we are adequately reserved overall, particularly with respect to CRE. We believe our thoughtful approach to managing risk, customer selection, and long-term relationship development will continue to serve us well. Fourth, we continue to build on our strong liquidity and capital position during the quarter, providing us with the financial strength and flexibility to help us support our clients, grow our businesses, and capitalize on future opportunities.

William Demchak: And fourth we continue to build on our strong liquidity and capital position during the quarter, providing us with the financial strength and flexibility to help us support our clients grow our businesses and capitalize on future opportunities.

William Demchak: In summary, we delivered solid results during the first quarter and positioned ourselves well for the balance of 2024 and beyond. Last month, we launched a brand campaign celebrating our boring approach to banking. Now, obviously, we're using humor in the campaign to have a little fun and grab the public's attention, but inside that humor is honesty about who we are, how we think about risk, and how we run our company. In short, it is everything we do to be steady and predictable.

William Demchak: In summary, we delivered solid results during the first quarter and positioned ourselves well for the balance of 'twenty 'twenty four and beyond.

William Demchak: Last month, we launched a brand campaign celebrating our boring approach to banking now obviously, we're using humor in their campaign to have a little fun and grab the public's attention, but inside of that humor. His honesty about who we are how do we think about risk in how we run our company in short it is everything we do to be steady and predictable.

William Demchak: Finally, I just want to thank our employees for everything they do for our customers, for each other, and for all of our stakeholders. And with that, I'll turn it over to Rob to take you through the quarter.

William Demchak: Finally, I just want to thank our employees for everything they do for our customers for each other and for all of our stakeholders. So with that I'll turn it over to Rob to take you through the quarter.

Robert Q. Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide four and is presented on an average linked quarterly basis. Loans of $321 billion decreased $4 billion, or 1%, and investment securities declined $2 billion, or 1%. And our cash balances at the Federal Reserve were $48 billion, an increase of $6 billion, or 13%. On a spot basis, our cash at the Fed was $53 billion, up from $43 billion in the prior quarter, reflecting higher period end deposits.

Robert Q. Reilly: Thanks, Bill and good morning, everyone. Our balance sheet is on slide four and is presented on an average linked quarter basis.

Robert Q. Reilly: Loans at $321 billion decreased $4 billion or 1% investment securities declined $2 billion or 1%.

Robert Q. Reilly: And our cash balances at the federal reserve for $48 million, an increase of $6 billion or 13%.

Robert Q. Reilly: On a spot basis, our cash at the fed was $53 million up from $43 billion in the prior quarter, reflecting higher period end deposits.

Robert Q. Reilly: Deposit balances averaged $420 billion, a decline of $4 billion, or 1%, reflecting seasonally lower commercial deposits. However, on a spot basis, deposits were up $4 billion, reflecting growth in both commercial and consumer deposits. Borrowed funds increased $3 billion to $76 billion, primarily driven by parent company debt issuances early in the quarter. At quarter end, AOCI was a negative $8 billion compared to a negative $7.7 billion at December 31, reflecting the impact of higher interest rates. Our tangible book value increased to $85.70 per common share, an 11% increase compared to the same period a year ago.

Deposit balances averaged $420 billion, a decline of $4 billion or 1%, reflecting seasonally lower commercial deposits. However on a spot basis deposits were up $4 billion, reflecting growth in both commercial and consumer deposits.

Robert Q. Reilly: Borrowed funds increased $3 billion to $76 billion, primarily driven by parent company debt issuance is early in the quarter.

Robert Q. Reilly: At quarter end, a S. T I was a negative $8 million compared to a negative $7.7 million at December 31.

Robert Q. Reilly: The impact of higher interest rates.

Robert Q. Reilly: Our tangible book value increased to $85.70 per common share an 11% increase compared to the same period a year ago.

Robert Q. Reilly: We remain well capitalized with an estimated CET1 ratio of 10.1% as of March 31. While we recognize the likelihood of potentially substantial changes to the Basel III endgame NPR under the currently proposed capital rules, our estimated fully phased-in expanded risk-based CET1 ratio would be approximately 8.3% as of March 31, 2024. We continue to be well-positioned with capital flexibility.

Robert Q. Reilly: We remain well capitalized with an estimated CET one ratio of 10, 1% as of March 31st.

Robert Q. Reilly: While we recognize the likelihood of potentially substantial changes to the Basel III and game N P or under the currently proposed capital rules, our estimated fully phased in expanded risk based CET one ratio would be approximately eight 3% as of March 31 2024.

Robert Q. Reilly: We continue to be well positioned with capital flexibility share repurchases approximated $135 million or roughly 1 million shares and when combined with $624 million of common dividends, we returned $759 million of capital to shareholders during the quarter.

Robert Q. Reilly: Share repurchases approximated $135 million, or roughly 1 million shares. And when combined with $624 million of common dividends, we returned $759 million of capital to shareholders during the quarter. Slide 5 shows our loans in more detail. Compared to the fourth quarter, average loan balances decreased 1%, primarily driven by lower commercial loan balances. Commercial loans were $219 billion, a decrease of $3.4 billion, driven by lower utilization as well as soft loan demand. Within the Corporate and Institutional Bank, utilization rates have remained below 2023 year-end levels and have not increased in the first quarter as is historically typical. We expect utilization to increase throughout the year.

Robert Q. Reilly: Slide five shows our loans in more detail.

Compared to the fourth quarter in average loan balances decreased 1%, primarily driven by lower commercial loan balances.

Robert Q. Reilly: Commercial loans were $219 billion, a decrease of $3.4 billion, driven by lower utilization as well as soft loan demand.

Robert Q. Reilly: Within the corporate and institutional bank utilization rates have remained below 20 twenty-three year end levels.

Robert Q. Reilly: And if not increased in the first quarter has been historically typical.

Robert Q. Reilly: We expect utilization to increase throughout the year, notably each percent of utilization within C&I be equates to $4 billion of loan growth.

Robert Q. Reilly: Notably, each percent of utilization within CNIB equates to $4 billion of loan growth. Consumer loans declined approximately $600 million, driven by lower credit card and home equity balances, and Total Loan Yields increased 7 basis points to 6.01% in the first quarter. Slide 6 details our investment security and swap portfolios.

Robert Q. Reilly: Consumer loans declined approximately $600 million driven by lower credit card and home equity balances and total loan yields increased seven basis points to 6.01% in the first quarter.

Robert Q. Reilly: Slide six details our investment security and swap portfolios average investment securities of $135 billion decreased 1% has curtailed purchase activity was more than offset by portfolio Paydowns and maturities the securities portfolio yield increased three basis points to 2.62%, reflecting the run off of lower yielding six.

Robert Q. Reilly: Average investment securities of $135 billion decreased 1% as curtailed purchase activity was more than offset by portfolio paydowns and maturity. The securities portfolio yield increased three basis points to 2.62%, reflecting the runoff of lower yielding securities. As of March 31st, the securities portfolio duration was four years.

Robert Q. Reilly: Charities as of March 31st the Securities portfolio duration was four years.

Robert Q. Reilly: Our receive fixed swaps pointing to the commercial loan book totaled $37 billion on March 31, the weighted average received fixed rate of our swap portfolio increased 20 basis points to 2.3% and the duration of the portfolio was two years.

Robert Q. Reilly: Our received fixed swaps pointed to the commercial loan book totaling $37 billion on March 31. The weighted average received fixed rate of our SWOT portfolio increased 20 basis points to 2.3%, and the duration of the portfolio was two years. Through the end of 2024, 13% of our securities and swap portfolio is scheduled to mature, which will allow us to reinvest in higher-yielding assets, providing a meaningful benefit to net interest income in the second half of the year. Accumulated other comprehensive income was negative $8 billion at March 31st, which will accrete back as our securities and swaps mature, resulting in continued tangible book value growth. Slide 7 covers our deposits in more detail.

Robert Q. Reilly: Through the end of 'twenty 'twenty, 413% of our securities and swap portfolio is scheduled to mature, which will allow us to reinvest into higher yielding assets, providing a meaningful benefit to net interest income in the second half of the year.

Robert Q. Reilly: Accumulated other comprehensive income was negative $8 billion at March 31st, which will accrete back as our securities and swaps mature, resulting in continued tangible book value growth.

Robert Q. Reilly: Slide seven covers our deposits in more detail.

Robert Q. Reilly: Average deposits decreased $4 billion to $420 billion during the quarter.

Robert Q. Reilly: As growth in consumer deposits was more than offset by a seasonal decline in commercial deposits.

Robert Q. Reilly: Regarding mix consolidated noninterest bearing deposits were 24% in the first quarter down slightly from 25% in the fourth quarter.

Robert Q. Reilly: Average deposits decreased $4 billion to $420 billion during the quarter, as growth in consumer deposits was more than offset by a seasonal decline in commercial deposits. Regarding MIX, consolidated non-interest-bearing deposits were 24% in the first quarter, down slightly from 25% in the fourth quarter. Notably, on a spot basis in the first quarter, non-interest-bearing deposits had the smallest dollar decline since the Fed began raising rates in 2022, which gives us confidence that the non-interest-bearing portion of our deposits has largely stabilized.

Robert Q. Reilly: Notably on a spot basis in the first quarter noninterest bearing deposits had the smallest dollar decline since the fed began raising rates in 2022.

Robert Q. Reilly: Which gives us confidence that the noninterest bearing portion of our deposits has largely stabilized.

Robert Q. Reilly: Our rate paid on interest bearing deposits increased to 2.6% during the first quarter.

Robert Q. Reilly: Up from 2.48% in the prior quarter.

Robert Q. Reilly: And as of March 31st our cumulative deposit beta was 45% and consistent with our expectations.

Robert Q. Reilly: Our rate paid on interest-bearing deposits increased to 2.6 percent during the first quarter, up from 2.48 percent in the prior. And as of March 31st, our cumulative deposit beta was 45%, consistent with our expectations. We believe our deposit betas have approached their peak levels, although we do expect some potential drift higher through the period leading up to a Fed rate cut, which we currently expect to occur in July. However, in regard to the timing and amount of potential rate cuts, we recognize there's a lot of fluidity and uncertainty.

Robert Q. Reilly: We believe our deposit betas have approached their peak levels, although we do expect some potential drift higher through the period, leading up to a fed rate cut which we currently expect to occur in July.

Robert Q. Reilly: In regard to the timing and amount of potential rate cuts, we recognize there's a lot of fluidity and uncertainty. However, our 'twenty 'twenty four NII will largely be unaffected by any short term interest rate movement or lack thereof.

Robert Q. Reilly: This is because our floating rate assets are aligned with our floating rate liabilities, including our high beta commercial interest bearing deposits and our long term debt, which is almost entirely swapped to floating rates.

Robert Q. Reilly: However, our 2024 NII will largely be unaffected by any short-term interest rate movement or lack thereof. This is because our floating rate assets are aligned with our floating rate liabilities, including our high beta commercial interest-bearing deposits and our long-term debt, which is almost entirely swapped to floating rates. Importantly, going forward, we've remained well positioned for the NII benefit of repricing low-yielding fixed-rate securities and loans maturing during the latter half of 2024 and into 2025.

Robert Q. Reilly: Importantly, going forward, we remain well positioned for the NII benefit of repricing low yielding fixed rate securities and loans maturing during the latter half of 'twenty 'twenty four and into 2025.

Robert Q. Reilly: Turning to the income statement on slide eight.

Robert Q. Reilly: First quarter net income was $1.3 billion or $3.10 per share, which included a pre tax non core noninterest expense of $130 million or $103 million after tax related to the increased FDIC special assessment.

Robert Q. Reilly: Excluding noncore expenses adjusted EPS was $3.36 per share.

Robert Q. Reilly: Turning to the income statement on slide 8, first quarter net income was $1.3 billion, or $3.10 per share, which included a pre-tax non-core, non-interest expense of $130 million, or $103 million after tax, related to the increased FDIC special assessment. Excluding non-core expenses, adjusted EPS was $3.36 per share.

Robert Q. Reilly: Total revenue of $5.1 billion decreased $216 million or 4% compared to the fourth quarter of 2023.

Robert Q. Reilly: Net interest income declined by $139 million or 4%.

Robert Q. Reilly: And our net interest margin was 2.57% a decline of nine basis points, resulting primarily from higher funding costs.

Robert Q. Reilly: Noninterest income decreased $77 million or 4% noninterest expense of $3.3 billion declined $740 million or 18% and included a $130 million FDIC special assessment.

Robert Q. Reilly: Total revenue of $5.1 billion decreased $216 million, or 4%, compared to the fourth quarter of 2023. Net interest income declined by $139 million, or 4%, and our net interest margin was 2.57%, a decline of nine basis points, resulting primarily from higher funding costs. Non-interest income decreased $77 million, or 4%.

Importantly, core noninterest expense was $3.2 billion and decreased $205 million or 6%.

Robert Q. Reilly: Provision was $155 million in the first quarter, reflecting portfolio activity and improved macroeconomic factors and our effective tax rate was 18, 8%.

Robert Q. Reilly: Non-interest expense of $3.3 billion declined $740 million, or 18%, and included a $130 million FDIC special assessment. Importantly, core non-interest expense was $3.2 billion and decreased $205 million, or 6%. Provision was $155 million in the first quarter, reflecting portfolio activity and improved macroeconomic factors, and our effective tax rate was 18.8 percent. Turning to slide 9, we highlight our revenue trends.

Robert Q. Reilly: Turning to slide nine we highlight our revenue trends.

Robert Q. Reilly: First quarter revenue was down $216 million or 4% driven by lower net interest income and in part a seasonal decline in fee income.

Robert Q. Reilly: Net interest income of $3.3 billion declined $139 million or 4%, reflecting increased funding costs lower loan balances and one less day in the quarter.

Robert Q. Reilly: Fee income was $1 $7 billion and decreased $74 million or 4% linked quarter looking.

Robert Q. Reilly: First quarter revenue was down $216 million, or 4%, driven by lower net interest income and, in part, a seasonal decline in fees. Net interest income of $3.3 billion declined $139 million, or 4%, reflecting increased funding costs, lower loan balances, and one less day in the quarter. Fee income was $1.7 billion and decreased $74 million, or a 4% lean quarter. Looking at the details.

Robert Q. Reilly: Looking at the detail.

Robert Q. Reilly: Asset management, and brokerage revenue was up $4 million or 1%, reflecting higher average equity markets.

Robert Q. Reilly: Capital markets and advisory fees declined $50 million or 16% driven by lower M&A advisory activity off elevated fourth quarter levels, partially offset by higher underwriting fees.

Robert Q. Reilly: Card and cash management decreased $17 million or 2% driven by seasonally lower consumer transaction volumes, partially offset by higher Treasury management fees.

Robert Q. Reilly: Lending and deposit related fees declined $9 million or 3%, reflecting the reduction of customer fees on certain checking products.

Robert Q. Reilly: Asset Management and Brokerage revenue was up $4 million, or 1%, reflecting higher average equity markets. Capital markets and advisory fees declined $50 million, or 16%, driven by lower M&A advisory activity off elevated fourth quarter levels, partially offset by higher underwriting fees. Card and cash management decreased $17 million, or 2%, driven by seasonally lower consumer transaction volumes, partially offset by higher treasury management costs. Lending and deposit-related fees declined $9 million, or 3%, reflecting the reduction of customer fees on certain checking products.

Robert Q. Reilly: Residential and commercial mortgage revenue declined $2 million or 1% and included lower residential mortgage activity.

Robert Q. Reilly: Other noninterest income of $135 million decreased $3 million or 2%, reflecting lower gains on sale.

Robert Q. Reilly: The first quarter also included a negative 7 million dollar visa fair value adjustment compared to a negative 100 million dollar adjustment in the fourth quarter.

Robert Q. Reilly: Turning to slide 10.

Robert Q. Reilly: Our core noninterest expense of three $3.2 billion decreased $205 million or 6% linked quarter, reflecting strong expense management.

Robert Q. Reilly: Importantly, compared to the first quarter of 2023 core noninterest expense declined $117 million or 4% with a decline in every expense category.

Robert Q. Reilly: Residential and commercial mortgage revenue declined $2 million, or 1%, and this included lower residential mortgage activity. Other non-interest income of $135 million decreased $3 million, or 2%, reflecting lower gains on sale. The first quarter also included a negative $7 million Visa Fair Value Adjustment compared to a negative $100 million adjustment in the fourth quarter. Turning to slide 10.

Robert Q. Reilly: This broad based result reflects the impact of expense actions taken in 2023.

Robert Q. Reilly: As we've previously stated we implemented expense management actions that will drive $750 million of cost savings in 2024.

Robert Q. Reilly: These actions include the 325 million dollar workforce reduction effort last year, which was realized in our first quarter expense run rate and our $425 million 2020 for continuous improvement program goal.

Robert Q. Reilly: Our core non-interest expense of $3.2 billion decreased $205 million, or 6% of the linked quarter, reflecting strong expense management. Importantly, compared to the first quarter of 2023, core non-interest expense declined $117 million, or 4%, with a decline in every expense category. This broad-based result reflects the impact of expense actions taken in 2023. As we previously stated, we implemented expense management actions that will drive $750 million of cost savings in 2024. These actions include the $325 million workforce reduction effort last year, which was realized in our first quarter expense run rate, and our $425 million 2024 Continuous Improvement Program, which we're well on track to achieve.

Robert Q. Reilly: Which we're well on track to achieve.

Robert Q. Reilly: We remain diligent in our expense management efforts and these actions give us confidence that we'll keep our year over year expenses stable.

Robert Q. Reilly: Our credit metrics are presented on slide 11.

Robert Q. Reilly: While overall credit quality remains resilient the pressure we anticipated within the commercial real estate office sector has continued.

Robert Q. Reilly: Nonperforming loans increased $200 million or 9% linked quarter, almost entirely driven by commercial real estate, which increased $188 million and inside of that approximately a $150 million was related to the C. R E office portfolio.

Robert Q. Reilly: Total delinquencies of $1.3 billion decreased $109 million or 8% linked quarter, driven by lower consumer and commercial delinquencies.

Robert Q. Reilly: Net loan charge offs were $243 million in the first quarter and our annualized net charge offs to average loans ratio was 30 basis points.

Robert Q. Reilly: We remain diligent in our expense management efforts, and these actions give us confidence that we'll keep our year-over-year expenses stable. Our credit metrics are presented on slide 11. While overall credit quality remains resilient, the pressure we anticipated within the commercial real estate office sector has continued. Non-performing loans increased $200 million, or 9% of the linked quarter, almost entirely driven by commercial real estate, which increased $188 million. And inside of that, approximately $150 million was related to the CRE office portfolio. Total delinquencies of $1.3 billion decreased $109 million, or 8%, linked quarter, driven by lower consumer and commercial delinquencies.

Robert Q. Reilly: Our allowance for credit losses totaled $5.4 billion or 1.7% of total loans on March 31st stable with December 31st.

Robert Q. Reilly: Slide 12 provides more detail on our CRE office credit metrics.

Robert Q. Reilly: While npls have increased over the past few quarters, our criticized balances have remained relatively consistent.

Robert Q. Reilly: The migration of criticized loans to nonperforming status is an expected outcome as we work to resolve the occupancy and rate challenges inherent to this portfolio.

Robert Q. Reilly: In the first quarter net loan charge offs within the CRE office portfolio were $50 million essentially in line with the previous quarter level.

Robert Q. Reilly: Ultimately, we expect continued charge offs on this portfolio and accordingly, we believe we are adequately reserved.

Robert Q. Reilly: Net loan charge-offs were $243 million in the first quarter, and our annualized net charge-offs-to-average-loans ratio was 30 basis points. Our allowance for credit losses totaled $5.4 billion, or 1.7% of total loans, on March 31, stable with December 31. Slide 12 provides more detail on our CRE office credit metric.

Robert Q. Reilly: As of March 31st our reserves on the office portfolio were 9.7% of total office loans and inside of that 14.4% on the multi tenant portfolio.

Robert Q. Reilly: Importantly, we continue to manage our exposure down and as a result, our balances declined 3% or approximately $200 million linked quarter.

Robert Q. Reilly: While NPLs have increased over the past few quarters, our criticized balances have remained relatively consistent. The migration of criticized loans to non-performing status is an expected outcome as we work to resolve the occupancy and rate challenges inherent to this portfolio. In the first quarter, net loan charge-offs within the CRE office portfolio were $50 million, essentially in line with the previous quarter level.

Robert Q. Reilly: In summary, PNC reported a solid first quarter 'twenty 'twenty, four and we're well positioned for the remainder of the year.

Robert Q. Reilly: Ultimately, we expect continued charge-offs on this portfolio, and accordingly, we believe we are adequately reserved. As of March 31st, our reserves on the office portfolio were 9.7% of total office loans, and inside of that, 14.4% on the multi-tenant portfolio. Importantly, we continue to manage our exposure down, and as a result, our balances declined three percent, or approximately $200 million, linked quarter. In summary, PNC reported a solid first quarter in 2024, and we're well positioned for the remainder of the year.

Robert Q. Reilly: We expect the fed to cut rates two times in 2024 with a 25 basis point decrease in July and another in November.

Robert Q. Reilly: Looking at the.

Robert Q. Reilly: The second quarter of 'twenty 'twenty, four compared to the first quarter of 'twenty 'twenty four.

Robert Q. Reilly: We expect average loans to be stable.

Robert Q. Reilly: Net interest income to be down approximately 1% and as I mentioned previously we expect NII and net interest margin to trough in the second quarter.

Robert Q. Reilly: Fee income to be up 1% to 2%.

Robert Q. Reilly: Other noninterest income to be in the range of $150 million and $200 million, excluding visa activity.

Robert Q. Reilly: Regarding our view of the overall economy, we're expecting economic expansion in the second half of the year, resulting in real GDP growth of approximately 2% in 2024, and unemployment to increase modestly to 4% by year end. We expect the Fed to cut rates two times in 2024, with a 25 basis point decrease in July and another in November. Looking at the second quarter of 2024 compared to the first quarter of 2024, we expect average loans to be stable.

Taking the component pieces of revenue together, we expect total revenue to be stable.

Robert Q. Reilly: We expect total core noninterest expense to be up 2% to 4%.

Robert Q. Reilly: We expect second quarter net charge offs to be between 225 and $275 million.

Robert Q. Reilly: As a reminder, P. N T owns 3.5 million visa class B shares with an unrecognized gain of approximately $1.6 billion.

Robert Q. Reilly: Under the terms of Visa's current exchange programs scheduled to close on or about May 3rd class B shareholders will have the opportunity to monetize 50% of their holdings.

Robert Q. Reilly: Net interest income is expected to be down approximately 1%. And as I mentioned previously, we expect NII and net interest margin to peak in the second quarter. Fee income is expected to be up 1-2%. Other non-interest income is expected to be in the range of $150 million and $200 million, excluding visa activities.

Robert Q. Reilly: We've not included the impact of monetizing the visa gain in our forecast.

Robert Q. Reilly: Turning to slide 14, our full year 'twenty 'twenty four our guidance is unchanged from our January earnings call and as a reminder, for the full year 2024 compared to the full year 2023, we expect average loan growth of approximately 1% total revenue to be faithful to down 2% inside of that our expectation is for <unk>.

Robert Q. Reilly: Taking the component pieces of revenue together, we expect total revenue to be stable. We expect total core non-interest expense to be up 2-4%. We expect second-quarter net charge-offs to be between $225 and $275 million. As a reminder, PNC owns 3.5 million Visa Class B shares with an unrecognized gain of approximately $1.6 billion. Under the terms of ESA's current exchange program, scheduled to close on or about May 3rd, Class B shareholders will have the opportunity to monetize 50% of their holdings. We've not included the impact of monetizing the visa gain in our forecast.

Robert Q. Reilly: Interest income to be down in the range of 4% to 5% and noninterest income to be up 4% to 6%.

Robert Q. Reilly: Core noninterest expense, which excludes the FDIC assessment is expected to be stable.

Robert Q. Reilly: And we expect our effective tax rate to be approximately 18, 5%.

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

William Demchak: Thank you we will now be conducting a question and answer session.

Speaker Change: As a reminder, if you would like to ask a question. Please press star one on your telephone keypad a confirmation total educate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your.

Robert Q. Reilly: Turning to slide 14, our full year 2024 guidance is unchanged from our January earnings call. And as a reminder, for the full year 2024 compared to the full year 2023, we expect average loan growth of approximately 1%. Total revenue is expected to be stable to down 2%. Inside of that, our expectation is for net interest income to be down in the range of 4% to 5% and non-interest income to be up 4% to 6%. Core non-interest expense, which excludes the FDIC assessment, is expected to be stable, and we expect our effective tax rate to be approximately 18.5%.

Speaker Change: Questions.

Betsy Graseck: Our first questions come from the line of Betsy graphic with Morgan Stanley. Please proceed with your questions.

Betsy Graseck: Hi, Hi.

Betsy Graseck: Good morning.

Betsy Graseck: Okay just to make sure you can hear me okay.

Betsy Graseck: Sure Yeah, no. This is great.

Betsy Graseck: The first question I had just has to do with how you're thinking about the NII, indicating to the trough improving from there and.

Betsy Graseck: I would think that the majority of that improvement is coming from loan growth, but correct me if I'm wrong.

Betsy Graseck: Thinking about that NII trajectory into the second half of the year, and then well I'll start there.

Betsy Graseck: Okay.

Betsy Graseck: Good morning, Betsy This is Rob so in terms of NII and the trajectory that we're on we knew it.

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

Operator: Thank you. We will now be conducting a question and answer session. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Betsy Graseck: At the beginning of the year that we would trough around.

Robert Q. Reilly: Around this time in the second quarter and that's the that's what's happening.

Robert Q. Reilly: We expect to grow from that trough level based on the.

Betsy Graseck: You may press star 2 if you would like to remove your question from. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for your question. Our first question comes from the line of Betsy Graseck with Morgan Stanley. Please proceed with your question. Hi. Hi, good morning. Good morning. Okay, just want to make sure you can hear me okay. Okay. Yeah, no, this is great.

Robert Q. Reilly: The repricing of our fixed rate assets.

Robert Q. Reilly: As rates settle down there is some reliance on the back half for loan growth.

Robert Q. Reilly: But all consistent with our full year guidance average loans up 1%.

Robert Q. Reilly: And just.

Speaker Change: Thank you.

Speaker Change: Yeah go ahead.

Speaker Change: I was just to say that the largest driver is repricing of fixed rate assets.

Betsy Graseck: The first question I have just has to do with how you're thinking about the NII indicator indicating the trough, improving from there. And I would think that the majority of that improvement is coming from loan growth. But correct me if I'm wrong, and how you're thinking about that NII trajectory into the second half of the year. And then, well, I'll start there.

Speaker Change: We expect some loan growth, but it's not a heroic though it.

Speaker Change: It's simply the rollout of our Securities book.

Speaker Change: Okay got it yeah, alright and.

Speaker Change: On the loan side. It is interesting to see the utilization rates ticking down here do you think that's just a function of.

Speaker Change: Fed funds is five and a half and that's the phase III from which C&I is priced off of or is there other dynamics there. Besides just right.

Robert Q. Reilly: Okay. Good morning, Betsy. This is Rob.

Robert Q. Reilly: So, in terms of NII and the trajectory that we're on, we knew at the beginning of the year that we would trough around this time in the second quarter, and that's what's happening. We expect to grow from that trough level based on the repricing of our fixed-rate assets as rates settle down. There is some reliance on the back half for loan growth, but all consistent with our full year guidance for average loans

Speaker Change: It's a variety of things I think.

Speaker Change: You know the capital markets activity in the first quarter.

Speaker Change: Investment grade debt put a lot of cash into the system and you just.

Speaker Change: You saw companies that could hit that market.

Speaker Change: Pay down revolver, so that that was sort of a near term.

Speaker Change: Packed to it there as you know is when we look out.

Speaker Change: There hasn't been any real inventory build which I would expect given retail sales.

Unknown Speaker: [inaudible]

Unknown Speaker: Transcribed by https://otter.ai

Unknown Speaker: You go ahead.

Speaker Change: There hasn't been much capex and capacity utilization has been holding constant at a pretty high level. So.

William Demchak: I was just going to say that the largest driver is the repricing of fixed-rate assets. You know, we expect some loan growth, but it's not a heroic number in there. It's simply rolled out of our securities book.

Speaker Change: At some point this needs to turn but I think the first quarter.

Speaker Change: Surprised us and my best guess.

Speaker Change: It was that was on the back of just how liquid the public markets work.

William Demchak: Okay, got it. Yeah. All right. And on the loan side, it is interesting to see the utilization rates ticking down here. Do you think that's just a function of Fed Funds is five and a half, and that's the base rate from which C&I is, you know, priced off of, or is there other dynamics there besides just rates?

Speaker Change: Okay got it thanks, so much really appreciate it.

Speaker Change: Thank you our next questions come from the line of John <unk> with Evercore ISI. Please proceed with your questions.

John: Good morning.

John: Hey, John on the on the expense front it looks like it looks like Oh.

John: Within expenses.

William Demchak: It's a variety of things. I think, you know, the capital markets activity in the first quarter was investment grade.

John: Good better than expected on the call.

In certain other areas can you start with solid expense management and your cost and effort.

William Demchak: dead.

William Demchak: put a lot of cash into the system, and you just, you know, you saw companies that could hit that market, pay down revolvers. So that was sort of a near-term impact on it. There's, you know, as we look out.

John: Yes.

John: Could you say that trends are coming in perhaps a bit better than you had forecasted as you look at your expenses.

John: And the journey.

Speaker Change: That process.

Speaker Change: Essentially your full year 'twenty four outlook could prove.

William Demchak: Unknown Speaker 0

William Demchak: There hasn't been any real inventory build, which I would expect given retail sales. There hasn't been much capex, and capacity utilization has been holding constant at a pretty high level. So, you know, at some point, this needs to turn, but I think the first quarter kind of surprised us, and my best guess was that was on the back of just how liquid the public markets were. Okay, guys.

Speaker Change: Conservative in terms of your stable expectation.

Speaker Change: But John this is Rob so I'd say for the full year, we're still planning and guiding towards stable.

Speaker Change: In the first quarter, you're right we're off to a good start.

In terms of <unk>.

Speaker Change: Realizing the expense actions that we took last year and CIP program that we had this year.

Speaker Change: But it's a little early in the year to that.

William Demchak: Okay, guys. Thanks so much. I really appreciate it, Bill. Thank you. Our next questions come from the line of John Pancari with Evercore ISI.

Speaker Change: Roll that all forward.

Speaker Change: And.

But like I said, we're off to a good start and we're well positioned for stable.

Speaker Change: Okay. Thanks, Rob that's helpful and then.

John G. Pancari: Please proceed with your question. Good morning. Good morning. Good morning.

Speaker Change: And then just.

Speaker Change: Separately on the credit side.

John G. Pancari: It looks like within expenses, they came in a bit better than expected, mainly on the comp side and certain other areas, and you cited solid expense management and your cost-save effort. Did you say that trends are coming in perhaps a bit better than you had forecasted as you look at your expense phase, and is there any thought process that, potentially, your full year 24 outlook could prove conservative in terms of your stable expectation?

Speaker Change: You can see the commercial real estate stress that you mentioned then we prudently added the office reserve in the quarter, but.

Speaker Change: Relatively stable or down a little bit in terms of your firm wide reserve are you seeing.

Speaker Change: Could you maybe talk about the progression of your credit and other areas are you seeing any mounting stress at all in C&I that could keep you potentially keep the reserve currently stable or could you continue to from a firm wide perspective, the reserves here.

Robert Q. Reilly: Well, John, this is Rob. So I'd say, you know, for the full year, we're still planning and guiding towards a stable. In the first quarter, you're right, we're off to a good start in terms of realizing the expense actions that we took last year and the CIP program that we have this year. But it's a little early in the year to roll that all forward. And like I said, we're off to a good start, and we're well positioned for stable.

Speaker Change: Bleed is a bad word.

Speaker Change: Yeah.

Speaker Change: But you know.

Speaker Change: The credit action at the moment is in the real estate book, specifically inside of office consumer at the margin you know a little bit worse, but.

Speaker Change: There isn't anything.

Speaker Change: Systematic going on in C&I that would cause us to have any different expectations of what we see now.

Robert Q. Reilly: Okay, thanks Rob, that's helpful. And then just separately, on the credit side, you can see the commercial real estate stress that you mentioned, and you prudently added to the office reserve in the quarter, but relatively stable or down a little bit on terms of your firm-wide reserve. Are you seeing, can you maybe talk about the progression in credit in other areas? Are you seeing any mounting stress at all in CNI that could keep you, potentially keep the reserve currently stable? Or could you continue to, from a wide firm perspective, bleed the reserve?

One were reserved for the moment based on our economic forecast.

Speaker Change: Yeah. The pressure the pressure is in the CRE book, specifically the iceberg.

Speaker Change: Okay, and then just related to that.

Speaker Change: Are you seeing migration and the ops book that is surprising.

Speaker Change: Giving you a forecast on that you added.

Speaker Change: It could be office reserve.

That surprised you in terms of your re appraisals, where you work them upfront.

Speaker Change: Okay.

Speaker Change: No.

Speaker Change: No surprises.

Speaker Change: Yeah everything Seth.

Speaker Change: Progressing as we expected we start with the criticized Npls are up a little bit.

Robert Q. Reilly: Bleed is a bad word.

Robert Q. Reilly: Transcribed by https://otter.ai

William Demchak: Unknown Speaker 0 The credit action at the moment is in the real estate book, and specifically inside of office. Consumers at the margin, a little bit worse, but there isn't anything systematic going on in CNI that would cause us to have any different expectations of what we see now. You know, we're reserved for the moment based on our economic forecast.

Speaker Change: But everything is consistent with what we've been saying.

Speaker Change: Got it alright, thanks, Rob.

Matt O'connor: Thank you. Our next question is coming from the line of Matt O'connor with Deutsche Bank. Please proceed with your questions.

Matt O'connor: Yeah.

Good morning, I'm looking at slide six where you show the run off of the fixed rate securities and swaps and.

William Demchak: Yeah, the pressure. The pressure is in the CRE books, specifically the ones

Matt O'connor: Any way to size the revenue pick up from this either anchoring to the foreign curve. Our current rates, we put out some crude analysis that showed about a 2 billion dollar impact and just said it was linear so half this year half next but obviously you know it was.

William Demchak: Okay, and then just related to that, you... Are you seeing migration in the office book that is surprising in giving you the forecast on what you have added notably to the office reserve? Is there anything there that surprises you in terms of your reappraisals or your work on that front? Transcription by CastingWords

Speaker Change: Just a rough cut on it so.

Speaker Change: Don't know if you have any comments on that or frame it on using your estimates.

Speaker Change: Yeah.

Speaker Change: No I would say so you know we laid it out in the slides in terms of what we see in terms of run off.

William Demchak: No surprises. Yeah, everything's progressing as we expected. You know, we started with the criticism, the NPLs are up a little bit. But everything's consistent with what we've been saying.

Speaker Change: And obviously at the projected a OCI burn down as it relates to capital, but all of that's in our guide so in terms of what our expectations are in terms of that behavior. That's in our full year.

Robert Q. Reilly: All right. Thanks, Rob. Thank you. Our next question has come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Good morning.

Speaker Change: Hi, Guy, which is down 45%.

Speaker Change: But it does make the point in terms of what we were saying earlier.

Speaker Change: The go forward the biggest variable is the repricing of our fixed rate assets and in this case securities.

Matt O'connor: I'm looking at slide six here where you show the runoff of the six-rate securities and swaps. And, you know, any way to size the revenue pickup from this, either anchoring to the forward curve or current rates? We put out some crude analysis that showed about a $2 billion impact and just said it was linear. So half this year, half next, but obviously, you know, it was, you know, just a rough cut at it. So I don't know if you have any comments on that or would frame it using your estimates. Thanks.

Speaker Change: Matt I think.

Speaker Change: But what everybody is struggling with here.

Speaker Change: Is this notion of what's the fed going to do in the next period of time is it.

Speaker Change: Two cuts or no cuts or three cuts, where we started out with six chunks.

Speaker Change: We did yes, we did not marketed.

Speaker Change: No you know base based on forward curve.

Speaker Change: The repricing of our fixed rate assets the amount of money incremental money. We will earn from that has increased because term rates have increased at the same time.

Robert Q. Reilly: Now, I would say, we laid it out in the slides in terms of what we see in terms of runoff, and obviously, the projected AOCI burndown as it relates to capital. But all of that's in our guide. So in terms of what our expectations are in terms of that behavior, that's in our full year guide, and I guide, which is down four to five. But it does make the point in terms of what we were saying earlier. Go forward.

Speaker Change: You know, but the assumption that the fed will maintain rates here longer causes us to pause.

Speaker Change: What happens to deposit pricing through time.

Speaker Change: Right. So there's there's a trade off higher rates and along that obviously helped us on our fixed rate assets deposit repricing.

Speaker Change: Continue czar.

Speaker Change: If the fed holds longer a much slower pace than its been at the past, but I think it's a it would be a bit of a heroic assumption from anybody to say that deposit costs will continue to creep up.

Robert Q. Reilly: The biggest variable is the repricing of fixed-rate assets, and in this case, securities.

Robert Q. Reilly: And in this case,

Speaker Change: In the face of a steady fed and so that's the trade off in the near term longer term the repricing.

William Demchak: Man, I think, um... What everybody's struggling with here is this notion of, you know, what the Fed is going to do in the next period of time. Is it, you know, two cuts or no cuts or three cuts? Remember, we started out with six cuts.

Speaker Change: Of the fixed rate assets to worse.

Speaker Change: The repricing of deposits.

Speaker Change: Yeah that that's kind of why we say look in the second quarter, we trough and then we pick up from there.

William Demchak: We didn't. Yeah, we did not.

25, yes.

Speaker Change: Yeah.

William Demchak: Unknown Speaker 0 We know, you know, based on the forward curve, the repricing of our fixed-rate assets, the amount of money we will earn from that has increased because

Speaker Change: That makes sense and then sorry, if I missed it earlier, but did you reiterate your view that 25 2025 non interest income would be record level and if you did you know what what would derail that.

William Demchak: Unknown Speaker 0 You know, the assumption that the Fed will maintain rates here longer causes us to pause on what happens to deposit pricing through time. I said there's a trade-off higher rates in the long run and obviously help us on our fixed rate assets. Deposit repricing continues. If the Fed holds longer, at a much slower pace than it's been in the past, but I think it's a, it would be a bit of a heroic assumption for anybody to say that deposit costs won't continue to creep up in the face of a steady Fed.

Speaker Change: The higher for longer it doesn't sounds like.

Speaker Change: It doesn't sound like Donald change that.

Speaker Change: Is there still a loan growth component or if rates go down too much just what would be the risk of achieving that or if you still have that view. Thank you.

Speaker Change: I mean, the biggest risk would be a massive curve inversion.

Speaker Change: Such that we were repricing fixed rate securities at lower yields.

Speaker Change: We are today.

Speaker Change: Well.

Speaker Change: What they were three months ago.

William Demchak: And so that's the trade-off in the near term. Longer term, the repricing of the fixed rate assets dwarfs the repricing of deposits. And that's kind of why we say, look, in the second quarter, we trough and then we pick up. And then the 25. Yeah.

Speaker Change: Right.

Speaker Change: No we had our original assumptions in that forecast yields were.

Speaker Change: Hundred lower than they are right now.

Speaker Change:

Speaker Change: They were to fall well below that.

Speaker Change: You know we would be at risk at that record number although still a high number.

Matt O'connor: That makes sense. And then, sorry if I missed it earlier, but did you reiterate your view that 25, 2025 interest income would be a record level? And if you did, you know, what would derail that if, you know, the higher for longer? It doesn't sound like, doesn't sound like that'll change it? You know, is there still a long growth component? Or if rates go down too much, just what would be the risk of achieving that if you still have that view?

Speaker Change: And Matt This is Rob.

Robert Q. Reilly: I'll take the opportunity to reiterate our view that 2025 will be a record NII.

Speaker Change: Okay. Thank you very much.

Speaker Change: Yeah.

Speaker Change: Thank you. Our next question comes from the line of Gerard Cassidy with RBC capital markets. Please proceed with your questions.

Gerard Sean Cassidy: Hi, Bill Hi, Rob.

Gerard Sean Cassidy: Sure Rob.

Gerard Sean Cassidy: Rob you talked about the utilization of the C&I loans that it was lower in the first quarter and normally it kind of ticks up a bit.

Matt O'connor: Thank you.

Robert Q. Reilly: I mean, the biggest risk would be a massive curve inversion. Well, I mean, what they were in the book three months ago.

Unknown Speaker: Unknown Speaker

Unknown Speaker: [inaudible]

Unknown Speaker: Now, we had our original assumptions in that forecast yields were 100 lower than they are right now. If they were to fall well below that, you know, we would be at risk at that record number, although still a high number.

Gerard Sean Cassidy: Question on that is it do you think your customers are just uncertain about their outlooks, which is kind of help them back from drawing down on lines of credit or do you think that they're having access to other lenders, meaning private credit market or the public markets that has taken away opportunities for banks.

Robert Q. Reilly: And Matt, this is Rob. It's Rob. I'll take the opportunity to reiterate our view that 2025 will be a record.

Gerard Sean Cassidy: Okay, thank you very much. Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your question. Hi, Bill. Hi, Rob.

Gerard Sean Cassidy: And these companies you increase those lines of utilization.

Gerard Sean Cassidy: Yes.

Gerard Sean Cassidy: I think it's both.

Gerard Sean Cassidy: It's it's.

William Demchak: Unknown Speaker 0, Rob, you talked about the utilization of the C&I loans that it was lower in the first quarter, and normally it kind of ticks up a bit. Question on that, do you think your customers are just uncertain about their outlooks, which has kind of helped them back from drawing down on lines of credit? Or do you think that they're having access to other lenders, meaning the private credit market or the public markets, that have taken away opportunities for banks to have these companies, you know, increase those lines of utilization?

Gerard Sean Cassidy: Capital markets activity in the first quarter were not.

Gerard Sean Cassidy: The private credit side on leveraged finance doesn't really impact us, but the public markets for wide open by the way our fees are up in that space for serving clients that way, but you know naturally at the margin that causes our utilization to go down the other issue you cant ignore rate we've seen.

Gerard Sean Cassidy: Capital spend in inventory bill be next to nothing even though capacity utilization is high retail sales are high.

Gerard Sean Cassidy: At some point, that's got to give but I do think there continues to be hesitancy.

William Demchak: I think it's both. Yeah, it's both.

William Demchak: The Capital Markets Activity in the first quarter, we're not..., you know, the private credit side on leverage finance doesn't really impact us. But the public markets were wide open, by the way, and our fees were up in that space for serving clients that way. But you know, naturally, at the margin, that causes our utilization to go down. The other issue is one you can't ignore, right? We've seen, you know, capital spend and inventory bills be next to nothing, even though capacity utilization is high, and retail sales are high. You know, at some point, that's got to give, but I do think there continues to be hesitancy by manufacturers, in particular, just in the face of this economy. And I think that's part of it.

Gerard Sean Cassidy: On manufacturers in particular.

Gerard Sean Cassidy: Just in the face of this call I mean, I think that's part of it.

Gerard Sean Cassidy: Looking for stability factor.

Gerard Sean Cassidy: Yeah.

Gerard Sean Cassidy: Which oil.

Gerard Sean Cassidy: Yeah.

Speaker Change: Very good and then I know, Rob I think you touched on in the answer to your question about the commercial real estate outlook office in particular.

Speaker Change: And you guys everything appears to be going in your expectations, what kind of pricing declines in appraisals that have come up and where you've had to reappraise certain properties are you seeing price declines 10, 15, 20% in those appraisals or more any color there.

William Demchak: I'm looking for a stability factor that will help.

Gerard Sean Cassidy: Very good. And then, Rob, I think you touched on in an answer to a question about the commercial real estate outlook, you know, office in particular, and you guys, everything appears to be going according to your expectations. What kind of pricing declines in appraisals have come up, and where you've had to reappraise certain properties? Are you seeing price declines 10, 15, 20% on those appraisals or more? Any color there?

Okay.

Speaker Change: I mean much higher than that.

Speaker Change: Okay.

Speaker Change: Well variance.

Speaker Change: The variances.

Speaker Change: All over the place but.

Speaker Change: As a practical matter if we were underwritten at the start it.

Speaker Change: 50 to 55.

Speaker Change: So whatever the appraised value was at that point in time, a big chunk of the book right now is effectively at par and we look at resolutions that we've gone through.

Unknown Speaker: [inaudible]

Unknown Speaker: ..

Unknown Speaker: Variant

William Demchak: [inaudible] all over the place. But, you know, as a practical matter, if we were underwritten at the start, 50 to 55 cents on whatever the appraised value was at that point in time, a big chunk of the book right now is effectively at par. You know, when we look at the resolutions that we've gone through, we've had everything from we get out whole to we lose 75 cents on the dollar on a given loan.

Speaker Change: We've had everything from we get out hold two we lose 75 cents on the dollar on a given loan.

Speaker Change: That's the variance.

Speaker Change: It's building specific it's market specific.

Speaker Change: This drive of this but but loss rates are a lot higher if you looked at office and said hey, how much of volume.

Unknown Speaker: Transcripts provided by Transcription Outsourcing, LLC.

Speaker Change: Values fall and it's a lot higher than 15%.

William Demchak: So it's, you know, it's building specific, it's market specific, that's driving this, but loss rates are a lot higher. You know, if you looked at Office and said, hey, how much of the value has fallen? It's a lot higher than 15 percent.

Speaker Change: Partially.

Speaker Change: Cross spaces, My view is closer to 30, or 40, or even higher and Youre thinking Youre thinking ahead in terms of where we're at.

Speaker Change: Got it up and appraisals here, we've seen it in actual resolution of properties.

William Demchak: Get out!

William Demchak: Personally, across the board, it's, in my view, it's closer to 30 or 40 or even.

Speaker Change: Got it thank you.

Speaker Change: Thank you. Our next question comes from the line of Dave Rochester with Compass point. Please proceed with your questions.

Unknown Speaker: Transcription by CastingWords

David Patrick Rochester: Got it. Thank you. Thank you. Our next questions come from the line of Dave Rochester with CompassPoint. Please proceed with your question. Hey, good morning, guys.

David Patrick Rochester: Hey, good morning, guys.

David Patrick Rochester: Just back on the NII Guide you mentioned the largest driver of the growth Youre looking for in the back half of the year is coming from the repricing. Then you got the loan growth is another factor was just wondering what youre assuming for deposit flows within that as well I would assume.

David Patrick Rochester: Just back on the NII guide, you mentioned the largest driver of the growth you're looking for in the back half of the year is coming from the repricing, then you got the loan growth as another factor. I was just wondering what you're assuming for deposit flows within that as well. I would assume that they could be a little bit better just from a seasonal perspective in the back half of the year. And then on the securities rolling off, how much of that liquidity is getting plowed back into the securities book? And what kind of yields are you looking at there at this point in purchasing?

David Patrick Rochester: Those can be a little bit better just from a seasonal perspective in the back half of the year.

David Patrick Rochester: And then on the securities Rolling off how much of that liquidity is getting plowed back into the securities book and what kind of yields you're looking at there at this point our purchases.

David Patrick Rochester:

David Patrick Rochester: Okay.

Speaker Change: So I'll, let Rob hit deposits in a second the assumption I mean, we have roll up of both fixed rate loans and fixed rate securities.

William Demchak: So I'll let Rob hit deposits in a second. The assumption, you know, we have a roll-off of both fixed rate loans and fixed rate securities. And the yields we assume, you know, in our forecast at this point are just forward curves, you know, adjusted for whatever the right spread is of the asset we'd be replacing. So like for like.

Speaker Change: And the yields we assume.

Speaker Change: And our forecast at this point or just forward curve.

Speaker Change: Adjusted for whatever the right spread is of the asset we'd replacing so like for like.

Robert Q. Reilly: Yeah, and then just on the deposits you know back at the beginning of the year, we expect deposits to decline year over year low single digits, we still expect that albeit in the first quarter, we did outperform that a bit but our expectations are for slightly lower deposits through the balance of the year.

Robert Q. Reilly: Yeah, and then just on deposits, you know, back at the beginning of the year, we expected deposits to decline year over year, you know, low single digits. We still expect that, albeit in the first quarter, we did outperform that a bit. But our expectations are for, you know, slightly lower deposits through the balance of the year. Okay.

Speaker Change: Okay, and then on the loan growth outlook, which you talked about I guess on an end of period basis last quarter. This higher for longer impact that expectation at all and what's your outlook for the longer end of the curve through the year.

David Patrick Rochester: Okay, and then on the loan growth outlook, which you talked about, I guess, on an ended-period basis last quarter, does higher interest rates impact that expectation at all? And what's your outlook for the longer end of the curve through the year?

Yeah.

Speaker Change: Oh.

Speaker Change: No I don't know that I've thought much about how higher for longer impacts slow or not.

Speaker Change: The outlook.

Speaker Change: We have four rates at this point.

William Demchak: Oh, No. I don't know that I've thought much about how higher for longer impacts long-term. You know, the outlook that we have for rates at this point, our official outlook is we have what we say two cuts starting in July at this point, with the curve largely staying where it is. Our forecast. Whether we're using the current forward curve or even when rates were lower, our NII forecast isn't terribly sensitive to what we're assuming, at least for this year, because the incremental amount we'd make from higher yields on bonds and loans is repricing.

Speaker Change: Our official outlook as we are producing two cuts starting in July at this point with the curve largely staying.

Speaker Change: It is.

Speaker Change: <unk>.

Speaker Change: Our forecast.

Whether we're using current for forward curve.

Speaker Change: Marina.

Speaker Change: When rates were lower.

Speaker Change: Our NII forecast isn't terribly sensitive to what we're assuming at least for this year.

Because the incremental amount, we'd make from higher yields.

On said Wall Street pricing.

William Demchak: We're assuming that it is largely offset by the deposit cost leakage that occurs if the Fed doesn't cut rates. So we're not, we're not making heroic assumptions on rates. We kind of don't work; we don't really care where they go in the near term. What we know is that once we get through the second quarter here, the repricing of fixed-rate assets simply starts to dwarf the potential repricing on deposits independent of where rates are.

Speaker Change: We're assuming is largely offset on the deposit cost leakage that.

Speaker Change: If the fed doesn't cut rates.

Speaker Change: So we're not.

Speaker Change: We're not making heroic assumptions on rates, we counted up where we don't really care, where they go in the near term. What we know is once we get through the second quarter here.

Speaker Change: <unk>.

Speaker Change: The repricing of fixed rate assets simply starts to dwarf the potential repricing of deposits and dependent on where rates are.

David Patrick Rochester: Got it. Great. Thank you. Our next questions come from the line of Ebrahim Poonawala with the Bank of America. Please proceed with your, Good morning.

Speaker Change: Got it great. Thanks, guys.

Speaker Change: Okay.

Speaker Change: Thank you our next questions come from the line of Ebrahim <unk> with Bank of America. Please proceed with your questions.

Ebrahim: Hey, good morning, I guess, maybe the 10th question on your loan growth outlook for the back half I think.

Ebrahim Huseini Poonawala: I guess maybe the 10th question on your loan growth outlook for the back half. I think the macro concern is that higher rates for longer will eventually tip this economy into a recession. We would love to hear, Bill, and Rob, your perspective based on what you are hearing from your bankers and clients. If we don't get any rate cuts for the year, based on what you're seeing, could we have a blind spot where the economy really kind of tails off, where a lot of these things catch up, and we enter some version of a stack creation? How do you handicap that downside risk heading into the back half of the year?

Ebrahim: The I guess the macro concern is that higher for longer will eventually get this economy into a recession.

Ebrahim: Would love to hear.

Ebrahim: Well, Rob your perspective based on what you are hearing from your bankers clients.

Ebrahim: If we don't get any rate cuts for the year.

Ebrahim: Based on what Youre seeing that could we have a blind spot where the economy really kind of tails off where a lot of these things catch up we enter some version of a stagflation or how do you handicap that downside risk heading into the back half of the year.

William Demchak: Okay, I think that's a possibility. The peculiar thing about utilization is that when credit conditions tighten, utilization increases. It's actually one of the primary drivers of utilization. So, bizarrely, loan growth would increase if you ran, you know, because utilization would increase if you ran into that scenario. But I do worry about that. Look, if, you know, eventually, if the only way to get rid of inflation is to really hurt the economy, I worry less about loan growth and more about long-term credit losses for the whole industry. Just as, you know, right now, everybody's planning for a soft landing.

Ebrahim: Okay, I think that's a possibility one of the.

Ebrahim: You'll hear things about utilization is when credit conditions tightened utilization increases it's actually one of the primary drivers of utilization so.

Ebrahim: As Harley.

Ebrahim: Loan growth would increase if you ran.

Ebrahim: Because utilization would increase if you ran into that scenario.

Speaker Change: But I do worry about that.

Speaker Change: Eventually if the only way to get rid of inflation is to really hurt the economy.

Speaker Change: I worry less about loan growth and more about long term credit losses for the whole industry.

Speaker Change: As you know right now everybody is planning for a soft landing.

Ebrahim Huseini Poonawala: Got it, and you still think soft lending is the base case in terms of the most likely outcome right now? Yes. And separately, Juan, I think, thanks for your advocacy and for Bank M&A. Just wanted to follow up on the letter you wrote to the OCC. One, are you finding any kind of sympathy within the regulatory apparatus around the case for allowing for larger bank M&A, and is there any possibility that we see deal making pick up ahead of the elections?

Speaker Change: Got it.

Still think soft lending is base case in terms of most likely outcome right now.

Speaker Change: Yes.

Speaker Change: And separately won anything tangible you advocacy of bank M&A just wanted to follow up on the letter you, though to the OCC.

Speaker Change: One are you finding any kind of Uh huh sympathy within the regulatory practice around.

Speaker Change: The key for allowing for a larger bank M&A and is there any possibility that we should be making pick up ahead of the elections.

Ebrahim Huseini Poonawala: Sorry, any possibility of what?

Speaker Change: Sorry, any possibility of what.

Ebrahim Huseini Poonawala: of deal-making picking up ahead of the November elections.

Speaker Change: Dealmaking picking up I heard after the November elections.

William Demchak: Oh, look, the letter was self-explanatory, and we've kind of beaten the topic to death. I guess what I would suggest is that I think the banking industry, by and large, is set up to do well over the next 18 months or so simply through rates normalizing, you know, assuming you didn't have big concentrations in real estate and offices. And I think everybody in the near term is focused on that. But I think long term, some of the charts we've put in that letter are just hard to ignore.

Speaker Change: Oh.

Speaker Change: Look, but the letter was self explanatory and we've kind of beat the topic to death I guess.

Speaker Change: What I would suggest is I think the banking industry.

Speaker Change: <unk> is set up to do well over the next 18 months or so simply through rates normalizing.

Speaker Change: I mean, you didn't have big concentrations too.

Speaker Change: Real estate and office.

Speaker Change: And I think everybody in the near term is focused on that I think long term some of the charts, we've put in that letter.

Speaker Change: It's just hard to ignore.

William Demchak: You know, you see the two largest banks in the country who, in the last four years, grew in size, larger than the biggest US Bank and PNC put together. Um, I don't know what the regulators think or don't think about that. You know, the intent of the letter was to just point out that what they wrote in the OCC comment letter was to freeze M&A across the country for any bank, you know, over $50 billion. Yeah, I think you can see the outcome that we'll have in this country, which is a massive consolidation at the, you know, with the, with the giant national banks. That's all my point was.

Speaker Change: You see the two largest banks in the country, who in the last four years grew.

Speaker Change: Of size.

Speaker Change: Larger than Truest U S bank in PSC put together.

Speaker Change:

Speaker Change: I don't know what the regulators think Curt I'll think about that.

Speaker Change: The intent of the letter was to just point out that.

Speaker Change: If what they wrote in the OCC comment letter was to freeze M&A across the country for any bank.

Speaker Change: $50 billion.

Speaker Change: Yes, I think you can see the outcome that will have in this country, which is a massive consolidation at the <unk>.

Speaker Change: With the giant national banks, it's all my pointless.

Ebrahim Huseini Poonawala: And do you see the backdrop conducive to deal-making over the coming months, quarters, or...

Speaker Change: Got it.

Speaker Change: And do you see the backdrop conducive for dealmaking.

Speaker Change: Coming months quarters or.

Ebrahim Huseini Poonawala: What? Uh, anything near-term.

Speaker Change: Before.

Speaker Change: There anything near term.

William Demchak: For us,

William Demchak: ..

William Demchak: No, I think most banks are content to hang out for the next 18 months because their earnings are going to improve, and their internal forecasts are going to look good, and everything's rosy.

Speaker Change: For us or the industry.

I think most banks are content to hang out the next 18 months because their earnings are going to improve.

Internal forecasts are going to look good and everything is rosy.

Speaker Change: I worried about the out years, but.

Unknown Speaker: Unknown Speaker 0

Unknown Speaker: Transcribed by https://otter.ai

Speaker Change: In the near term I imagine everybody's.

Speaker Change: Buddies internal look pretty good.

William Demchak: And we don't control others' timing, so that's up to them. That's right.

Speaker Change: And we don't control, others timing said thats up to them.

Bill Carcache: That's fine. Got it. Thank you. Our next questions come from the line of Bill Carcache with Wolf Research. Please proceed with your question. Thanks.

Speaker Change: Got it thank you so much.

Speaker Change: Yeah.

Speaker Change: Thank you our next questions come from the line of Bill Quirk Hockey with Wolfe Research. Please proceed with your questions.

Bill Carcache: Good morning, Bill and Rob. Following up on your comments around soft loan demand and utilization rates, assuming we avoid recession and the soft landing scenario plays out, how would you respond to the view that the ingredients may not be in place for a reacceleration in loan growth, given this environment where Fed funds are running above CPI and the Fed can't cut amidst inflation? We spent most of the post-GFC era with Fed funds running below CPI and had mid-single-digit loan growth, but just what are your thoughts on the risk that loan growth may not go up much if the Fed can't cut below CPI, and do you lean more heavily into your fee-based businesses if that happens?

Speaker Change: Thanks, Good morning, Bill and Rob.

Speaker Change: Following up on your comments around soft loan demand and utilization rates, assuming we avoid recession in the soft landing scenario plays out how would you respond to the view that the ingredients may not be in place for a reacceleration in loan growth given this environment, where fed funds is running above CPI and the fed.

Speaker Change: Cut amid sticky inflation, we spent most of the posts gf's here, what with fed funds running below CPI and had mid single digit loan growth, but would just love your thoughts on the risk that.

Loan growth may not go up much if the fed can't cut below CPI and do you lean more heavily into your fee based businesses if that happens.

Speaker Change: Uh huh.

Speaker Change:

William Demchak: Unknown Speaker. I'm not sure that funds versus CPI necessarily have much to do with loan growth. I think, you know, loan growth ultimately is driven by the economy, and the economy has been running, you know, hotter than most people assumed, and it's been running hotter than most people assumed without big inventory builds. If you look at fourth-quarter GDP, you know, there was a drawdown on inventories. Inventories are directly correlated with utilization and loan growth.

Speaker Change: I'm not sure if fed funds versus CPI necessarily as much to do with loan growth.

Speaker Change: I think you had a loan growth ultimately is driven by the economy and the economy has been running hotter than most people had assumed that it's been running hotter than most people would assume without big.

Speaker Change: Inventory builds if you look at fourth quarter GDP. There was a drawdown of inventories inventories are directly correlated with utilization of AUM growth and Capex has been muted so.

William Demchak: And CapEx has been muted. So, you know, if the economy slows, if the Fed has to slow the economy to a point where it's not a soft landing in order to get inflation under control, that can hurt in the long run. But if the economy is strong, you know, you just saw retail sales, eventually, it's going to translate into loan growth, on the limit of whether or not there are positive real rates.

Speaker Change: You know if the economy slows if the fed has to slow the economy to a point, where it's not a soft landing in order to get inflation under control that can hurt loan growth.

Speaker Change: But if the economy is strong.

Speaker Change: You just saw retail sales eventually it's going to translate into the loan growth.

Speaker Change: Whether or not theres positive real rates.

William Demchak: I think there's a strong correlation between them.

Speaker Change: I think that strong correlation.

Bill Carcache: That's helpful. Thank you. And then, as a follow-up on your comments about the Visa B shares, how should we think about the dollar amount and the use of proceeds?

Speaker Change: Yeah.

Speaker Change: That's helpful. Thank you and then as a follow up on your comments about the visa B shares how should we think about the dollar amount and the use of proceeds.

Robert Q. Reilly: Well, so yeah, as I mentioned in our comments on May 3, we'll have the opportunity to monetize 50% of our holdings, which are roughly $1.6 billion in unrealized gains. And that'll just be capital. And, you know, we'll look at how we apply everything in terms of our excess capital. But we'll wait until we get the capital to

Speaker Change: Well, so yeah as I mentioned in our comments on May 3rd we will have the opportunity to monetize 50% of our holdings, which our holdings are roughly 1 billion fix and unrealized gains.

Speaker Change: And that will just be capital and.

Speaker Change: We will look at how we apply everything in terms of our excess capital, but we'll wait until we get the capital to do that.

Robert Q. Reilly: Got it. Thank you.

Speaker Change: Okay.

Speaker Change: Got it. Thank you for taking my questions, Hey, monetized half of up to 1.6.

Kenneth Michael Usdin: Thank you for your questions.

Kenneth Michael Usdin: Thank you. Our next questions come from the line of Ken Usdin with Jeffries. Please proceed with your Hey, guys, good morning.

Thank you our next questions come from the line of Ken <unk> with Jefferies. Please proceed with your questions.

Ken: Hey, guys. Good morning, just to follow up on the fee side I think when you spoke in January you talked about expected slowness in capital markets and M&A to begin the year and then we were.

Kenneth Michael Usdin: Just to follow up on the fee side, I think when you spoke in January, you talked about expected slowness in capital markets and M&A to begin the year. And then, you know, we were thinking about 20% growth overall. Just wondering just how that's looking in terms of the body language you're getting from those middle market clients and Harris Williams. And then also, if you have any other color on what you think the other drivers of fees are going to be. Thanks. Unknown Speaker

I think you were thinking about a 20% growth overall, just wondering just how that's looking in terms of the body language youre getting from those middle market clients and Harris Williams and then also if you have any other color on what you think the other drivers of fees are going to be thanks.

Ken: I mean, the Harris Williams pipeline.

At the moment as larger larger than it's ever been but its larger than it was last year with just their first quarter relative to their fourth quarter's light and that's what drove the quarter on quarter change in our total fees. Yes, we had so Ken to answer. Your question, we are sticking to the 20% expectation for growth and capital.

William Demchak: I mean, the Harris-Williams pipeline, at the moment, is larger, larger than it's ever been, but it's larger than it was last year.

Unknown Speaker: Unknown Speaker 0

Robert Q. Reilly: Yeah, we had. So, Ken, to answer your question, we are sticking to the 20% expectation for growth in capital markets year over year. Bill's right. First quarter was off elevated fourth-quarter levels. But in terms of the comp last year, in the second and third quarter, capital markets were really soft. Harris-Williams was really soft. And the pipeline suggests we are not going to repeat that. We'll be well above those levels.

Ken: <unk> year over year.

Ken: Bill's right first quarter was off elevated fourth quarter levels, but.

Ken: In terms of the comp last year in the second and third quarter capital markets was really soft Harris Williams is really soft him.

Ken: The pipeline suggests we are not going to repeat that will be well above those levels.

Kenneth Michael Usdin: Okay, I got it. All right. And the last one just on the asset and wealth side, I think you've had some pretty good flows of things like that first quarter starting point was more the markets. I know you put a lot of effort into that business. Any sense of just, you know, change in terms of like asset flows and new business wins and, you know, incremental potential revenue growth from that business specifically?

Speaker Change: Okay got it alright.

Speaker Change: Last one just.

Speaker Change: On the on the asset and wealth side I think you've had some pretty good flows and things like that that first quarter. Starting point was more of the markets. I know you put a lot of effort into that business.

Speaker Change: Any sense of just change in terms of like asset flows and new business wins and incremental potential revenue growth out of that business specifically.

William Demchak: Unknown Speaker: You know, we've had success over the last year kind of repositioning who and what we are in the market, bringing in new assets to accelerate that to a level where it becomes a meaningful part of our company. I think that's a bit of a challenge. It's a service to our clients, and we're good at it. But the trends are going the right way.

Speaker Change:

Speaker Change: We have had success over the last year kind of repositioning who and what we are in the market.

Speaker Change: Bringing in new assets to accelerate that to a level, where it becomes a meaningful part of our company I think is a bit of a challenge.

Speaker Change: Service to our clients and we're good at it but.

Speaker Change: But the trends are going the right way.

Robert Q. Reilly: Yeah, I would just add to that, Ken. Obviously, the business is doing well, with the equity markets supporting that. The growth opportunity is in the new BBVA markets in the Southwest, where you'll recall BBVA really didn't have a wealth management business. So we're de novo, so to speak, in all those markets. But we're up and running with team inflows, and asset inflows are occurring. And, you know, long term, that's where the incremental growth will come from.

Speaker Change: Yeah, I would I would just add to that Ken obviously, the business is doing well at the equity markets are supporting that.

Speaker Change: The growth opportunity is in the new BBVA markets in the southwest where.

Speaker Change: Your coffee BVA really didn't have a wealth management business. So we're de novo so to speak and all of those markets.

Speaker Change: But we're up and running with teams inflows asset inflows are occurring and long term, that's where the that's where the incremental growth will come from.

Kenneth Michael Usdin: and one more just to follow up. Is that an area that you could add to organically over time? I know it's tough just because of multiples and whatnot, but you've done it organically, as you just said.

Speaker Change: And one more just follow up is that an area that you could add to inorganically over time I know, it's tough just because of multiples and whatnot, but you've done inorganically as you just said.

Speaker Change: It's.

Speaker Change: That's a tough business in my view.

William Demchak: That's a tough business, in my view, to add to inorganically. The cultural differences, the way you go to market, the outright price and the goodwill associated with it, and the return on equity that comes with that make it all really difficult to do. And at least historically, you know, the opportunity to grow organically is much stronger than going out and trying to add to it through purchase.

Speaker Change: To add to <unk>.

Speaker Change: Organically.

Speaker Change: The cultural differences the way you go to market the outright price and the goodwill associated with the return on equity that comes with that makes it all really difficult to do.

And at least historically the opportunity to grow organically.

Speaker Change: It is much stronger than going out and trying to add to it through purchase.

Kenneth Michael Usdin: Okay, I got it. Great. Thank you. Thank you.

Speaker Change: Okay got it thank you.

Speaker Change: Yeah.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Michael Lawrence Mayo: As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Mike Mayo with Wells Fargo. Please proceed with your question.

Speaker Change: Our next questions come from the line of Mike Mayo with Wells Fargo. Please proceed with your questions.

Michael Lawrence Mayo: Oh, hi, it looks like.

Michael Lawrence Mayo: Hi, it looks like you were leaning into expense control this quarter, but I'm just trying to figure out ahead. So you mentioned 750 million in cost savings for this year. How much of that was in the first quarter? But you also mentioned a billion dollars of extra spending for branches. How much of that was in the first quarter, and how should we think about those offsets? And I know it's a tough fight to get positive operating leverage this year. Do you feel better or worse or the same as you did three months ago? Thanks.

Michael Lawrence Mayo: You are well.

Michael Lawrence Mayo: We're leaning into the expense control this quarter, but I'm just trying to figure out ahead. So you mentioned $750 million of cost savings for this year, how much of that was in the first quarter, but you also mentioned a $1 billion of extra spending for branches how much of that was in the first quarter and how should we think about those offsets and I know it.

Michael Lawrence Mayo: A tough fight to get positive operating leverage this year do you feel better worse. The same as you did three months ago. Thanks.

Michael Lawrence Mayo: Well, to chunk that down, we'll start with the positive operating leverage. For the full year, we still think that's pretty tough, not including any visa gains, of course, simply because of the NII and the rate.

Speaker Change: Well, yes.

Speaker Change: That down so we will start with the positive operating leverage.

Speaker Change: Full year, we still think thats pretty tough not.

Speaker Change: Not including any visa gains of course simply.

Speaker Change: Simply because of the NII and the rate issues.

Robert Q. Reilly: Page PAGE of NUMPAGES www.verbalink.com We do feel good about our expenses. We projected and guided them to being stable year-over-year. We're off to a good start in the first quarter, a little bit ahead of where we expected to be, but you know we still have a long way to go. So all of the items that you talked about are in there, but you know the guidance is stable year-over-year, which is important to us.

Speaker Change: And those run rates are.

We do feel good about our expenses that we projected.

Speaker Change: <unk> guided to being stable year over year, we're off to a good start in the first quarter a little bit ahead of where we expect it to be but we still got a long way to go so all of the items that you talked about there in there.

Speaker Change: But.

Speaker Change: The guidance is stable over year over year, which is important to us.

Michael Lawrence Mayo: Okay, I'll shift gears back. Bill, you were talking about commercial real estate. Look, you reserved 10% for office space, and you said the value of the underlying properties was probably down 30% to 40% or more. So I guess that is reflected in your reserves, which I think is more than the average bank. Do you see a difference by region, and I know it changes by region and subregion and property and type and all that, but do you see a difference by region, whether it's the big cities, what? Give a little sense of that variance. You can see it's all over the place. You just fill in a few data points around that. That'd be great.

Speaker Change: Okay I'll shift gears back, though you were talking about commercial real estate looking reserve, 10% for office.

Speaker Change: And you said the value of the underlying properties are probably down 30% to 40% or more so I guess that is reflected in your reserving, which I think is more than the average bank.

Speaker Change: Do you see a different spot and I know it changes by region, and subregion and property and type and all that but how do you see a difference by region, whether it's the big cities.

Speaker Change: <unk>.

Speaker Change: Give a little sense of that variance you can it's all over the place. So there's still a few data points around that that'd be great.

William Demchak: Yeah. Um. No surprise, parts of California are the worst.

Speaker Change: Yeah.

Speaker Change: No surprise parts of California, the worst.

William Demchak: But it really comes down to the building and the market. I mean, you know, you could have a building that's in the right place, in Pittsburgh, and it's doing absolutely fine. And you can have a building that's in the wrong place, in Pittsburgh, and it's literally worth zero.

Speaker Change: But it really comes down to the building in the market.

Speaker Change: You could have a building thats in the right place.

Speaker Change: In Pittsburgh, and it's doing absolutely fine and you could have a building that's in the wrong place in Pittsburgh and it's literally worth zero.

William Demchak: And that that's the market we're playing in right now. Now, inside of that whole thing, you know, we do feel that we've been ahead of this game, that we're reserved correctly, that we are, you know, conservatively, taking marks when we have the opportunity to do so. But it's, you know, this is going to play out over time, and your eyes aren't lying to you when you look out and see vacancy.

Speaker Change: That's the market, we're playing with right now.

Speaker Change: Inside of that whole thing.

Speaker Change: We do feel that we've been ahead of this game that were reserved correctly that we are.

Speaker Change: Conservatively.

Speaker Change: Taking marks and we have the opportunity to do so.

Speaker Change: But it's you know this is.

Got to play out over time.

Speaker Change: And your eyes arent lying to you when you look out and see vacancies.

William Demchak: And I think ourselves and the large banks have been pretty open about, you know, it's going to be an issue. It's not a massive book of business for us. I'm not particularly worried about it. We're well-reserved. But it's going to roll through the country and impact some of the smaller banks, I think. In a way that is probably larger than people's work, yeah.

Speaker Change: And I think.

Speaker Change:

Speaker Change: I think ourselves and the large banks have been pretty open about you know there's going to be an issue. It's not a massive book of business for us So I'm not particularly worried about it we're well reserved but it's going to roll through the country and impact some of the smaller banks I think are.

Speaker Change: In a way that is.

Larger that people start to understand.

Michael Lawrence Mayo: And just one short follow-up on that one. The longer rates stay higher, do you expect this to spill over from office to other areas of commercial real estate?

Speaker Change: And just one short follow up on that one the longer rates stay higher.

Speaker Change: Do you expect this to bleed over from office to other areas of commercial real estate.

William Demchak: [inaudible] You know, at the margin, yes, but it is kind of just at the margin. So you see debt service coverage ratios decline, you know, as interest costs take more of the cash flow out. Multifamily, for example, rents aren't increasing at the pace they once were. The massive difference, though, Mike, is that, you know,

Speaker Change:

You know at the margin yes.

Speaker Change: But it is kind of just at the margin. So you see debt service coverage ratios decline.

Speaker Change: You know as interest costs take take or the cash flow oddness in multifamily for example, rents or an increasing at the pace. They once where the massive difference, though Mike is that.

William Demchak: All other types, or virtually all other types of real estate, are cash flowing, so there's a value to them. Right, they just might not have enough cash flow to support the original amount of debt they had. The problem you have with an office is, you know, in many instances, there's no cash flow at all.

Speaker Change: All other types or virtually all the other types of real estate are cash flowing so there is a value to them.

Speaker Change: They just might not cash flow to support the original amount of that to hit the problem you have in office.

Speaker Change: As you know in many instances, there's no cash flow at all.

William Demchak: It's really a unique animal.

Speaker Change: It's really a unique animal in development.

Michael Lawrence Mayo: Great, thank you. Thank you.

Speaker Change: Great. Thank you.

Thank you our next questions come from the line of John Mcdonald with Autonomous Research. Please proceed with your questions.

John Mcdonald: Our next questions come from the line of John McDonald with Autonomous Research. Please proceed with your question. Hey, guys, just wanted to touch base on how you're thinking about capital build. Obviously, you're building organically, you've got some Visa, that will add 14, 15 bips next quarter, I guess. Are you just kind of thinking of gradually kind of building from this, you know, 10% reported and the 8.3 fully loaded to get to nine or 10 or so over the next year, you know, do a little bit of buybacks, just kind of what's the plan there?

John Mcdonald: Hey, guys just wanted to.

John Mcdonald: Just touch base on how Youre thinking about capital build obviously, you're building organically you've got some visa.

John Mcdonald: That will add 14 15 bps next quarter I guess are you just kind of thinking you have gradually kind of building from this 10% reported in the 8.3 fully loaded.

John Mcdonald: To get to nine or 10, or so over the next year do a little bit of buybacks just kind of what's the.

Unknown Speaker: Unknown Speaker.

John Mcdonald: The plan there.

William Demchak: Well, you phrased the question almost exactly correctly, so congratulations.

John Mcdonald:

Speaker Change: Well you phrased the question almost exactly correctly so.

Speaker Change: Congratulations.

William Demchak: Congratulations! I'll take them.

Amit: Thank you Amit.

Amit: You think about an inside with all these moving pieces inside of the NPR Basel III end game.

William Demchak: Transcription by CastingWords The one thing that's all up in the air, but the one thing that you got to believe is going to stick is AOCI. And so if that's the case, then, you know, our printed 8-3 number is kind of our real number, and that would be otherwise too low for us, and we want to build that through time. Some of that will happen just from the rundown of the book.

Amit: The one thing it's all up in the year, but the one thing that you got to believe is going to stick as they OCI.

Amit: And so thats the case then.

Amit: Our printed eight three number as kind of a real number and that would be otherwise too low for us that we want to build that through time.

Amit: Some of that will happen from the rundown of the book and some of that'll happen through us building capital.

William Demchak: And some of that will happen through us, you know, building capital. The ultimate where should we be? Basel three, end game, everything settled out number I don't know that we've necessarily set yet, other than it's higher than where we sit today on the 8th. I think that's, so yeah, that's there.

Amit: <unk>.

Amit: You know the ultimate where should we be Basel, three and game everything settled out number I don't know that we have.

Amit: Necessarily set.

Amit: Other than its higher than where we sit today on the eight three.

Speaker Change: That's all right that's fair that's fair and we've got we've got capital flexibility as you know John.

Unknown Speaker: Transcribed by https://otter.ai

Robert Q. Reilly: And so for the near term, Rob, is this kind of ballpark, you know, 100 million a little bit north of that, is that kind of ballpark until you get a little more clarity? Yeah, that's right.

Speaker Change: And that's where you want to be right now with the fluidity of everything.

Speaker Change: So for the near term Rob is as kind of the ballpark $100 million, a little bit north of that as that kind of a ballpark and so you get a little more clarity.

Robert Q. Reilly: Yeah, that's right.

Robert Q. Reilly: Yeah.

John Mcdonald: Okay, guys. Thank you. There are no further questions at this time. I would now like to turn the floor back over to Bryan Gill for closing.

Robert Q. Reilly: Okay.

Speaker Change: Okay. Thanks, guys.

Speaker Change: Sure.

Speaker Change: Thank you there are no further questions at this time I would now like to turn the floor back over to Bryan Gill for closing comments.

Bryan K. Gill: Well, thank you all for joining the PNC call this morning. And if you have any follow-up questions, please feel free to reach out to the ER team. Take care. Thank you. Thank you. I'm sorry about that. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.

Bryan K. Gill: Oh, well. Thank you all for joining the P&C call. This morning, and if you have any follow up questions. Please feel free to reach out to the IR team.

Bryan K. Gill: Take care.

Thank you. Thank you.

Speaker Change: Sorry about that this concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation enjoy the rest of your day.

Speaker Change: Yes.

Speaker Change: [music].

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