Q2 2024 The PNC Financial Services Group Inc Earnings Call

Operator: Greetings and welcome to the PNC Financial Services Group second quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Speaker Change: Greetings and welcome to the PNC Financial Services Group's second quarter 2024 earnings conference call.

Operator: 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. If you would like to withdraw your question, please press star 2 on your telephone. If anyone should require operator assistance during the conference, please press star zero. As a reminder, this conference is being held, and it is now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may begin. Well, good morning.

Speaker Change: At this time, all participants are in a listen-only mode.

Speaker Change: 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 0 on your telephone keypad.

Bryan K. Gill: 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.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan. You may begin.

Bryan K. Gill: Well, good morning. 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 .

Bryan K. Gill: Today's presentation contains forward-looking information. Questionary 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. However, these statements speak only as of July 16, 2024, and PNC undertakes no obligation to update them. Now, I'd like to turn the call over to Bill. Thank you, Bryan, and good morning, everyone.

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

Bryan K. Gill: These are all available on our corporate website pnc.com under Investor Relations. These statements speak only as of July 16, 2024, and PNC undertakes no obligation to update them.

Bryan K. Gill: Now I'd like to turn the call over to Bill.

William S. Demchak: As you've seen, we had a strong second quarter, and we generated $1.5 billion in net income, or $3.39 diluted earnings per share. Our results included a gain on a portion of our Visa Class B shares, which was substantially offset by other items in the quarter, including a securities repositioning. Rob's going to provide more details on that Visa gain, financial results, and outlook in a second, but I'll highlight a few things. First off, net interest income has moved past its trough, and both NII and NIM grew in the quarter.

Bill: Thank you, Bryan, and good morning, everyone. As you've seen, we had a strong second quarter, and we generated $1.5 billion in net income, or $3.39 diluted earnings per share. Our results included a gain on a portion of our Visa Class B shares, which was substantially offset.

Bryan K. Gill: by other items in the quarter, including a securities repositioning.

Bryan K. Gill: Rob's going to provide more details on that visa gain financial results and outlook in a second, but I'll highlight a few items.

Rob: First off, net interest income has moved past its trough, and both NII and NIM grew in the quarter. And by the way, this would have occurred independent of the $10 million impact that we got from the securities repositioning.

William S. Demchak: And by the way, this would have occurred independent of the $10 million impact that we got from the securities repositioning. Importantly, we are on a growth trajectory toward expected record NII in 2025. We continue to add new customers and see strong business momentum across our franchise, particularly in the new and expansion markets. DDA growth has accelerated in our branches, and we continue to add new corporate and commercial banking clients above historical rates. In our retail business, we launched our first new credit card in several years, PNC Cash Unlimited, a highly competitive card that offers 2% back on all purchases.

Speaker Change: Importantly, we are on a growth trajectory towards expected record NII in 2025.

Rob: We continue to add new customers and see strong business momentum across our franchise, particularly in the new and expansion markets. DDA growth accelerated in our branches and we continue to add new corporate and commercial banking clients above historical rates.

Rob: In our retail business, we launched our first new credit card in several years, PNC Cash Unlimited, a highly competitive card that offers 2% back on all purchases. We plan to launch several new cards in the months and year ahead.

William S. Demchak: We plan to launch several new cards in the months and year ahead. Average deposits held relatively flat to the first quarter levels, a little bit ahead of our expectations. And our expenses remained well controlled, and we generated positive operating leverage during the second quarter. Rob's going to touch on this in a minute, but we have increased our continuous improvement program target for 2024 as expense discipline remains a top priority. The credit environment continues to play out as we have expected, including an increase in charge-offs within the CRE office portfolio, where we remain adequately reserved. Outside of CRE office, credit quality remains relatively stable.

Rob: Average deposits held relatively flat to the first quarter levels, a little bit ahead of our expectations. And our expenses remained well controlled and we generated positive operating leverage during the second quarter. Rob's going to touch on this in a minute, but we have increased our continuous improvement program target for 2024 as expense discipline remains a top priority.

Rob: The credit environment continues to play out as we have expected, including an increase in charge-offs within the CRE office portfolio, where we remain adequately reserved. Outside of CRE office, credit quality remains relatively stable.

William S. Demchak: Finally, we further strengthened our capital levels during the quarter. Our strong balance sheet allows us to continue supporting our customers and communities, investing in our business and people, and delivering returns for shareholders. Our financial strength and stability are also reflected in the latest results from the Fed stress test, in which we maintained our stress capital buffer at the regulatory minimum of 2.5%. And importantly, for the second year in a row, PNC has had the lowest start to trough capital depletion in our peer group, further demonstrating our best-in-class resiliency.

Rob: Finally, we further strengthened our capital levels during the quarter. Our strong balance sheet allows us to continue supporting our customers and communities, investing in our business and people, and delivering returns for shareholders. Our financial strength and stability are also reflected in the latest results from the Fed stress test in which we maintained our stress capital buffer at the regulatory minimum of 2.5%. And importantly, for the second year in a row, PNC has had the lowest start-to-trough capital depletion in our peer group.

William S. Demchak: With this in mind, our board recently approved an increase in our quarterly stock dividend by 5 cents. In summary, we delivered strong results in the second quarter and are well positioned to drive further growth and expansion into 2025 and beyond. Before I turn it over to Rob, as always, I just want to thank our employees for everything they do for our company and our customers. And with that, I'll turn it over to Rob to take you through the quarter. Rob?

Rob: Further demonstrating our best-in-class resiliency. With this in mind, our board recently approved an increase in our quarterly stock dividend by five cents.

Rob: In summary, we delivered strong results in the second quarter and are well positioned to drive further growth and expansion into 2025 and beyond. Before I turn it over to Rob, as always, I just want to thank our employees for everything they do for our company and our customers. And with that, I'll turn it over to Rob to take you through the quarter. Rob? 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: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide four and is presented on an average linked quarterly basis. Loans of $320 billion were stable, investment securities increased $6 billion or 4%, and our cash balances at the Federal Reserve were $41 billion, a decrease of $7 billion or 15%, primarily reflecting the deployment of cash into higher yielding securities. Deposit balances averaged $417 billion, a decline of $3 billion, or less than 1%, due to a seasonal decline in corporate balances.

Unknown Executive: Loans of $320 billion were stable; investment securities increased $6 billion or 4%.

Rob: Loans of $320 billion were stable. Investment securities increased $6 billion, or 4%. And our cash balances at the Federal Reserve were $41 billion, a decrease of $7 billion, or 15%, primarily reflecting the deployment of cash into higher-yielding securities.

Unknown Executive: And our cash balance is that the Federal Reserve of $41 billion, a decrease of $7 billion, or 15%. Primarily reflecting the deployment of cash into higher yielding securities. To pop the balance is average $417 billion that a client of $3 billion or less than 1%. Due to a seasonal decline in corporate balances. borrowed funds increased $2 billion, or 2%. And we're 15% of total liabilities. That quarter-end AOCI was negative $7.4 billion and improved $600 million compared with March 31st. Our tangible book value increased $89.12 per common share. The 4% increase length quarter and a 15% increase compared to the same period a year ago.

Rob: Deposit balances averaged $417 billion, a decline of $3 billion, or less than 1%, due to a seasonal decline in corporate balances. Borrowed funds increased $2 billion, or 2%, and were 15% of total liabilities.

Robert Q. Reilly: Borrowed funds increased $2 billion, or 2%, and were 15% of total liability. At quarter end, AOCI was negative $7.4 billion and improved $600 million compared with March 31st. Our tangible book value increased $89.12 per common share, a 4% increase in the length of the quarter, and a 15% increase compared to the same period a year ago.

Rob: At quarter end, AOCI was negative 7.4 billion dollars and improved 600 million dollars compared with March 31st.

Rob: Our tangible book value increased $89.12 per common share, a 4% increased linked quarter, and a 15% increase compared to the same period a year ago.

Unknown Executive: We remain well capitalized, and our estimated CET-1 ratio increased to 10.2% as of June 30th. Regarding the Bible 3N game, we expect the inclusion of AOCI in the final rule, and our CET-1 ratio with the impact of AOCI would be 8.7%. And while we recognize the likelihood of change is to certain other aspects of the Bible 3N game NPR. Under the currently proposed capital rules, our estimated fully faced and expanded risk-based CET-1 ratio would be approximately 8.4%. We continue to be well-positioned with capital flexibility. We return roughly $700 million of capital to shareholders during the quarter, which included $600 million in common dividends and $100 million of share repurchases.

Robert Q. Reilly: We remain well capitalized, and our estimated CET1 ratio increased to 10.2% as of June 30th. Regarding the Basel III endgame, we expect the inclusion of AOCI in the final rule, and our CET1 ratio with the impact of AOCI would be 8.7%. And while we recognize the likelihood of changes to certain other aspects of the Basel III endgame NPR, under the currently proposed capital rules, our estimated fully phased-in expanded risk-based CET1 ratio would be approximately 8.4%. We continue to be well positioned with capital flexibility. We returned roughly $700 million of capital to shareholders during the quarter, which included $600 million in common dividends and $100 million of share repurchases.

Rob: We remain well capitalized and our estimated CET1 ratio increased to 10.2% as of June 30th.

Rob: Regarding the Basel III endgame, we expect the inclusion of AOCI in the final rule, and our CET1 ratio with the impact of AOCI would be 8.7%.

Rob: And while we recognize the likelihood of changes to certain other aspects of the Basel III endgame NPR, under the currently proposed capital rules, our estimated fully phased-in expanded risk-based CET1 ratio would be approximately 8.4%.

Rob: We continue to be well positioned with capital flexibility. We returned roughly $700 million of capital to shareholders during the quarter, which included $600 million in common dividends and $100 million of share repurchases.

Bill Carcache: And as Bill just mentioned, our board recently approved a five-cent increase to our quarterly cash dividend on common stock, raising the dividend to $1.60 per share.

Robert Q. Reilly: And, as Bill just mentioned, our board recently approved a five percent increase to our quarterly cash dividend on common stocks, raising the dividend to $1.60 per share. Our recent CCAR results underscore the strength of our balance sheet, and as previously announced, our current stress capital buffer remains at the regulatory minimum of 2.5% for the four-quarter period beginning in October 2024. Slide 5 shows our loans in more detail. Compared to the first quarter, average loan balances were stable.

Rob: And, as Bill just mentioned, our board recently approved a five-cent increase to our quarterly cash dividend on common stock, raising the dividend to $1.60 per share.

Unknown Executive: Our recent CET-4 results under the strength of our balance sheet and, as previously announced, our current stress capital buffer remains at the regulatory minimum of 2.5%.

Speaker Change: Our recent CCAR results underscore the strength of our balance sheet, and as previously announced, our current stress capital buffer remains at the regulatory minimum of 2.5% for the four-quarter period beginning in October 2024.

Unknown Executive: For the fourth quarter period, beginning in October 2024.

Unknown Executive: Slide 5 shows our loans in more detail. Compared to the first quarter, average loan balances were stable. Commercial loans were essentially flat as utilization remains well below both the pre-pandemic historical average of roughly 55%. And the second quarter 2023 level of 52 and a half percent. Importantly, we continue to grow customer relationships and see an IV loan commitments increased during the second quarter. Although the direction of the near-term economy remains uncertain, cap X to sales levels and inventory growth rates remain below historical averages, both of which are typically leading indicators of eventual commercial loan growth.

Speaker Change: Slide 5 shows our loans in more detail. Compared to the first quarter, average loan balances were stable.

Robert Q. Reilly: Commercial loans were essentially flat as utilization remains well below both the pre-pandemic historical average of roughly 55% and the second quarter 2023 level of 52.5%. Importantly, we continue to grow customer relationships, and CNIB loan commitments increased during the second quarter. Although the direction of the near-term economy remains uncertain, capex to sales levels and inventory growth rates remain below historical averages, both of which are typically leading indicators of eventual commercial loan growth.

Speaker Change: Commercial loans were essentially flat as utilization remains well below both the pre-pandemic historical average of roughly 55% and the second quarter 2023 level of 52.5%.

Speaker Change: Importantly, we continue to grow customer relationships, and CNIB loan commitments increase during the second quarter.

Speaker Change: Although the direction of the near-term economy remains uncertain, CapEx to sales levels and inventory growth rates remain below historical averages, both of which are typically leading indicators of eventual commercial loan growth.

Unknown Executive: Average consumer loan declined approximately $600 million, or less than 1%, driven by lower residential real estate and home equity loan balances. And the yield on total loans increased for basis points to 6.05% in the second quarter.

Robert Q. Reilly: Average consumer loans declined approximately $600 million, or less than 1%, driven by lower residential real estate and home equity loan balances, and the yield on total loans increased four basis points to 6.05% in the second quarter.

Speaker Change: Average consumer loans declined approximately $600 million, or less than 1%, driven by lower residential real estate and home equity loan balances.

Speaker Change: And the yield on total loans increased four basis points to 6.05% in the second quarter.

Robert Q. Reilly: Slide 6 details our investment security and swap portfolios. Average investment securities of $141 billion increased to $6 billion, or 4%, reflecting the deployment of excess liquidity into higher yielding securities, primarily U.S. Treasuries. The securities portfolio yield increased 22 basis points to 2.84%, driven by higher rates on new purchases. As of June 30th, the securities portfolio duration was three and a half years.

Unknown Executive: Slide 50 tales are investment security and swap portfolios. Average investment security is of $141 billion, increased $6 billion or 4%. For selecting the deployment of excess liquidity into higher yielding securities, primarily U.S. treasuries. The securities portfolio yield increased 22 basis points to 2.84%. Driven by higher rates on new purchases. as of June 30th, Security's portfolio duration with three and a half years. During the second quarter, our forward starting swaps increased to $18 billion, with the addition of these swaps. We've locked in a portion of our fixed rate asset repricing through 2025 at a level that is approximately 300 basis points higher than maturity.

Speaker Change: Slide six details our investment security and swap portfolios.

Speaker Change: Average investment securities of $141 billion increased to $6 billion, or 4%, reflecting the deployment of excess liquidity into higher-yielding securities.

Speaker Change: primarily U.S. Treasuries.

Speaker Change: The securities portfolio yield increased 22 basis points to 2.84%, driven by higher rates on new purchases.

Speaker Change: As of June 30th, the securities portfolio duration was three and a half years.

Robert Q. Reilly: During the second quarter, our forward-starting swaps increased to $18 billion. With the addition of these swaps, we've locked in a portion of our fixed-rate asset repricing through 2025 at a level that is approximately 300 basis points higher than maturity. The total weighted average received fixed rate of our SWOT portfolio, including the forward starters, increased 83 basis points to 3.13%, and the duration of the portfolio is 2.2 years. Slide 7 highlights the securities repositioning we executed during the second quarter.

Speaker Change: During the second quarter, our forward-starting swaps increased to $18 billion. With the addition of these swaps, we've locked in a portion of our fixed-rate asset repricing through 2025 at a level that is approximately 300 basis points higher than maturity.

Unknown Executive: The total weighted average received six rate of our swaps portfolio, including the forward starters, increased 83 basis points to 3.13 percent, and the duration of the portfolio is 2.2 years.

Speaker Change: The total weighted average received fixed rate of our SWOT portfolio, including the forward starters, increased 83 basis points to 3.13%, and the duration of the portfolio is 2.2 years.

Unknown Executive: Slide 7 highlights the security's repositioning we executed during the second quarter. We sold securities with a book value of $4.3 billion and a market value of $3.8 billion. We recognize the $497 million loss on the sale and reinvested the $3.8 billion of proceeds into securities, with yields approximately 400 basis points higher than the securities sold. The repositioning is expected to benefit our net interest income by $80 million in 2024, with roughly $10 million of that being realized in the second quarter. And the estimated earnback period for this transaction is less than four years.

Speaker Change: Slide 7 highlights the securities repositioning we executed during the second quarter. We sold securities with a book value of 4.3 billion dollars and a market value of 3.8 billion dollars.

Robert Q. Reilly: We sold securities with a book value of $4.3 billion and a market value of $3.8 billion. We recognized a $497 million loss on the sale and reinvested the $3.8 billion of proceeds into securities with yields approximately 400 basis points higher than the securities sold.

Speaker Change: We recognize the $497 million loss on the sale and reinvested the $3.8 billion of proceeds into securities, with yields approximately 400 basis points higher than the securities sold.

Robert Q. Reilly: The repositioning is expected to benefit our net interest income by $80 million in 2024, with roughly $10 million of that being realized in the second quarter, and the estimated earnback period for this transaction is less than four years. Turning to slide 8, we expect a considerable runoff of low-yielding securities and swaps through the end of 2026, which will allow us to continue to reinvest in higher-yielding assets providing a meaningful benefit to net interest income. Accumulated other comprehensive income improved to negative $7.4 billion on June 30, compared to negative $8 billion on March 31.

Speaker Change: The repositioning is expected to benefit our net interest income by $80 million in 2024, with roughly $10 million of that being realized in the second quarter.

Speaker Change: And the estimated earnback period for this transaction is less than four years.

Unknown Executive: Turning to slide 8, we expect considerable run-off of low-yielding securities and swaps through the end of 2026, which will allow us to continue to reinvest into higher yielding assets, providing a meaningful benefit to net interest income. Accumulated other comprehensive income improved to negative $7.4 billion on 2030, compared to negative $8 billion on March 31. The improvement was primarily due to the securities repositioning. AOCI will continue to accrete back as our securities and swaps mature, resulting in further growth to tangible book value.

Speaker Change: Turning to slide 8, we expect considerable runoff of low-yielding securities and swaps through the end of 2026.

Speaker Change: which will allow us to continue to reinvest into higher yielding assets, providing a meaningful benefit to net interest income.

Speaker Change: Accumulated other comprehensive income improved to negative $7.4 billion on June 30th, compared to negative $8 billion on March 31st.

Robert Q. Reilly: The improvement was primarily due to the security's repositioning. AOCI will continue to accrete back as our securities and swaps mature, resulting in further growth to tangible book value. Slide 9 covers our deposits in more detail. Average deposits declined $3 billion, or 1%, reflecting seasonally lower corporate balances.

Speaker Change: The improvement was primarily due to the security's repositioning.

Speaker Change: AOCI will continue to accrete back as our securities and swaps mature, resulting in further growth to tangible book value.

Unknown Executive: Slide 9 covers our deposits in more detail. Average deposits decline $3 billion, or 1%, for selecting seasonally lower corporate balances. Regarding mix, consolidated non-inspiring deposits for 23% of total deposits in the second quarter, down less than 1% is points from the first quarter. Additionally, average non-inspiring deposits have the smallest dollar decline in the second quarter of 2024, since the Fed began raising rates in 2022, which gives us confidence that the non-inspiring portion of our deposits has largely stabilized. And our rate paid on interest sparing deposits increased by only one basis point during the second quarter to 2.61%.

Speaker Change: Slide 9 covers our deposits in more detail. Average deposits declined $3 billion, or 1%, reflecting seasonally lower corporate balances.

Robert Q. Reilly: Regarding MIX, consolidated non-interest-bearing deposits were 23 percent of total deposits in the second quarter, down less than one percentage point from the first quarter. Additionally, average non-interest-bearing deposits had the smallest dollar decline in the second quarter of 2024 since the Fed began raising rates in 2022, which gives us confidence that the non-interest-bearing portion of our deposits has largely stabilized, and our rate paid on interest-bearing deposits increased by only one basis point during the second quarter to 2.61%.

Speaker Change: Regarding MIX, consolidated non-interest-bearing deposits were 23% of total deposits in the second quarter, down less than one percentage point from the first quarter.

Speaker Change: Additionally, average non-interest bearing deposits had the smallest dollar decline in the second quarter of 2024 since the Fed began raising rates in 2022, which gives us confidence that the non-interest bearing portion of our deposits has largely stabilized.

Speaker Change: And our rate paid on interest bearing deposits increased by only one basis point during the second quarter to 2.61%.

Unknown Executive: We believe our rate paid on deposits is approaching its peak level, but we do expect some potential drift higher as interest rates remain elevated.

Robert Q. Reilly: We believe our rate paid on deposits is approaching its peak level, but we do expect some potential drift higher as interest rates remain elevated. Turning to the income statement, and as Bill mentioned, there were several significant items in the quarter, and I want to provide a bit more detail. Taken together, these significant items have a minimal impact on our earnings per share, totaling a net EPS benefit of $0.09. As we previously disclosed, we participated in the Visa Exchange Program, allowing us to monetize 50% of our Visa Class B1 shares and convert our remaining holdings to 1.8 million Visa Class B2 shares. Through the exchange, we recognized a $754 million pre-tax gain.

Speaker Change: We believe our rate paid on deposits is approaching its peak level, but we do expect some potential drift higher as interest rates remain elevated.

Unknown Executive: Turning to the income statement, and as Bill mentioned, there were several significant items in the quarter, and I want to provide a bit more detail. Taken together, the significant items have a minimal impact to our earnings per share, totaling to a net EPS benefit of 9 cents. As we previously disclosed, we participated in the Visa Exchange Program, allowing us to monetize 50% of our Visa Class B1 shares and convert our remaining holdings to 1.8 million Visa Class B2 shares. Through the exchange, we recognize a $754 million pre-tax gain. In addition, we had significant items that occurred in the second quarter that largely offset the game, and they are as follows.

Speaker Change: Turning to the income statement, and as Bill mentioned, there were several significant items in the quarter, and I want to provide a bit more detail.

Bill: Taken together, these significant items have a minimal impact to our earnings per share, totaling to a net EPS benefit of $0.09.

Speaker Change: As we previously disclosed, we participated in the Visa Exchange Program, allowing us to monetize 50% of our Visa Class B1 shares.

Speaker Change: and convert our remaining holdings to 1.8 million Visa Class B2 shares. Through the exchange, we recognize a $754 million pre-tax gain.

Robert Q. Reilly: In addition, we had significant items that occurred in the second quarter that largely offset the gain, and they are as follows. First, as I mentioned earlier, we repositioned a portion of our securities portfolio and, through the sale of certain low-yielding securities, recognized a $497 million loss. Second, we recorded a negative $116 million Visa derivative fair value adjustment associated with Visa Class B-2 shares primarily related to the extension of anticipated litigation resolutions

Speaker Change: In addition, we had significant items that occurred in the second quarter that largely offset the gain, and they are as follows.

Unknown Executive: First, as I mentioned earlier, we repositioned a portion of our securities portfolio, and through the sale of certain low-yielding securities, recognized a $497 million loss. Second, we recorded a negative $116 million Visa derivative fair value adjustment, associated with Visa Class B2 shares, primarily related to the extension of anticipated litigation resolution. And lastly, we recognize the $120 million PNC Foundation contribution expense. The Foundation supports our communities in early childhood education.

Speaker Change: First, as I mentioned earlier, we repositioned a portion of our securities portfolio and through the sale of certain low-yielding securities recognized a $497 million loss.

Speaker Change: Second, we recorded a negative $116 million Visa Derivative Fair Value Adjustment associated with Visa Class B-2 shares primarily related to the extension of anticipated litigation resolution.

Robert Q. Reilly: And lastly, we recognize the $120 million PNC Foundation contribution expense. The Foundation supports our communities and early childhood education. Turning to slide 11, we highlight our income statement trends. Second quarter net income was $1.5 billion, or $3.39 per share.

Speaker Change: And lastly, we recognize the $120 million PNC Foundation contribution expense.

Speaker Change: The Foundation supports our communities and early childhood education.

Unknown Executive: Turning to slide 11, we highlight our income statement trends. Second quarter net income was $1.5 billion, or $3.39 per share. Total revenue of $5.4 billion increased $266 million, or 5%, compared to the first quarter of 2024. Net interest income grew by $38 million, or 1% in the second quarter. Notably, this is the first time NII has increased in six quarters, marking the beginning of an expected upward trajectory. And our net interest margin was 2.6%, in increased of three basis points. Non-interest income increased $228 million, or 12%, and included $141 million of the significant items I previously detailed.

Speaker Change: Turning to slide 11, we highlight our income statement trends. Second quarter net income was one and a half billion dollars or three dollars and thirty nine cents per share.

Robert Q. Reilly: Total revenue of $5.4 billion increased $266 million, or 5%, compared to the first quarter of 2024. Net interest income grew by $38 million, or 1%, in the second quarter. Notably, this is the first time NII has increased in six quarters, marking the beginning of an expected upward trajectory. Additionally, our net interest margin was 2.6%, an increase of three basis points. Non-interest income increased $228 million, or 12%, and included $141 million of the significant items I previously detailed. Non-interest expense of $3.4 billion increased $23 million, or 1%, and included the $120 million foundation contribution expense.

Speaker Change: Total revenue of $5.4 billion increased $266 million or 5% compared to the first quarter of 2024.

Speaker Change: Net interest income grew by $38 million, or 1% in the second quarter.

Speaker Change: Notably, this is the first time NII has increased in six quarters, marking the beginning of an expected upward trajectory.

Speaker Change: And our net interest margin was 2.6%, an increase of three basis points.

Speaker Change: Non-interest income increased $228 million, or 12%, and included $141 million of the significant items I previously detailed.

Unknown Executive: Non-interest expense of $3.4 billion increased $23 million, or 1%, and included $120 million foundation contribution expense. Notably, we generated positive operating leverage in both the linked quarter and year-over-year comparisons. Provision was $235 million in the second quarter for selecting portfolio activity, and our effective tax rate was 18.8%.

Speaker Change: Non-interest expense of $3.4 billion increased $23 million or 1% and included the $120 million foundation contribution expense.

Robert Q. Reilly: Notably, we generated positive operating leverage in both the linked quarter and year-over-year comparison. Provision was $235 million in the second quarter, reflecting portfolio activity, and our effective tax rate was 18.8%. Turning to slide 12, we highlight our revenue trends. Second quarter revenue was up $266 million, or 5%, driven by higher non-interest income and net interest income. Net interest income of $3.3 billion increased $38 million, or 1%, driven by higher yields on interest-earning assets.

Speaker Change: Notably, we generated positive operating leverage in both the linked quarter and year-over-year comparisons.

Speaker Change: Provision was $235 million in the second quarter, reflecting portfolio activity, and our effective tax rate was 18.8%.

Unknown Executive: Turning to slide 12, we highlight our revenue trends. Second quarter revenue was up $266 million, or 5%, driven by higher non-interest income and net interest income. Net interest income was $3.3 billion, increased $38 million, or 1%, driven by higher yields on an interest earning asset. Fiancome was $1.8 billion, and increased $31 million, or 2% linked quarter. Looking at the detail, asset management and brokerage non-interest income was stable linked quarter, and as a benefit of higher average equity markets was offset by lower annuity sales due to elevated first quarter activity. Capital markets and advisory fees increased $13 million, or 5%, driven by higher M&A advisory activity and loan syndications.

Speaker Change: Turning to slide 12, we highlight our revenue trends.

Speaker Change: Second quarter revenue was up $266 million, or 5%, driven by higher non-interest income and net interest income.

Speaker Change: Net interest income of $3.3 billion increased $38 million or 1% driven by higher yields on interest earning assets.

Robert Q. Reilly: Fee income was $1.8 billion and increased $31 million or 2% compared quarter. Looking at the details. Asset Management and Brokerage Non-Interest Income was stable late quarter as the benefit of higher average equity markets was offset by lower annuity sales due to elevated first quarter activity. Capital markets and advisory fees increased $13 million, or 5%, driven by higher M&A advisory activity and loan syndications, partially offset by lower underwriting fees. Card and cash management increased $35 million, or 5%, reflecting seasonally higher consumer transaction volumes and higher treasury management fees. Mortgage revenue declined $16 million, or 11 percent, primarily due to lower residential mortgage activity.

Speaker Change: Fee income was $1.8 billion and increased $31 million or 2% linked quarter.

Speaker Change: Looking at the detail.

Speaker Change: Asset management and brokerage non-interest income was stable in quarter as the benefit of higher average equity markets was offset by lower annuity sales due to elevated first quarter activity.

Speaker Change: Capital markets and advisory fees increased $13 million, or 5%, driven by higher M&A advisory activity and loan syndications, partially offset by lower underwriting fees.

Unknown Executive: Partly offset by lower underwriting fees. Card and cash management increased $35 million, or 5%, reflecting seasonally higher consumer transaction volumes and higher treasury management fees. Mortgage revenue declined $16 million, or 11%, primarily due to lower residential mortgage activity. Other non-interest income was $332 million, increased $197 million, and included $141 million related to this quarter's significant item.

Speaker Change: Card and cash management increased $35 million or 5% reflecting seasonally higher consumer transaction volumes and higher Treasury management fees.

Speaker Change: Mortgage revenue declined $16 million, or 11%, primarily due to lower residential mortgage activity.

Robert Q. Reilly: Other non-interest income of $332 million increased to $197 million and included $141 million related to this quarter's significant items. Turning to slide 13, our non-interest expense of $3.4 billion was well controlled, increasing by only $23 million, or 1%. Expenses for the second quarter included a $120 million contribution to the PNC Foundation, while the first quarter of 2024 included a $130 million FDIC special assessment. Importantly, non-interest expense excluding the foundation contribution declined $135 million, or 4%, compared with the second quarter of 2023. Notably, personnel declined as a result of the workforce reduction actions we took last year.

Speaker Change: Other non-interest income of $332 million increased to $197 million and included $141 million related to this quarter's significant items.

Speaker Change: Turning to slide 13, our non-interest expense of $3.4 billion was well controlled, increasing by only $23 million, or 1%.

Speaker Change: Expenses for the second quarter included the $120 million contribution to the PNC Foundation, while the first quarter of 2024 included a $130 million FDIC Special Assessment.

Speaker Change: Importantly, non-interest expense excluding the foundation contribution declined $135 million or 4% compared with the second quarter of 2023.

Speaker Change: Notably, personnel declined as a result of the workforce reduction actions we took last year.

Robert Q. Reilly: As Bill mentioned, we remain diligent in our continuous improvement efforts. At the beginning of the year, we set a continuous improvement program goal of $425 million. Recently, we have identified initiatives that support increasing our CIP by an additional $25 million, raising our full-year target to $450 million. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on slide 14. Non-performing loans increased $123 million, or 5% linked quarter, primarily driven by an individual secured loan within our asset-based lending business. Total delinquencies of $1.3 billion were stable with March 31st.

Speaker Change: As Bill mentioned, we remain diligent in our continuous improvement efforts. At the beginning of the year, we set a continuous improvement program goal of $425 million.

Speaker Change: Recently, we have identified initiatives that support increasing our CIP by an additional $25 million, raising our full-year target to $450 million. As you know, this program funds a significant portion of our ongoing business and technology investments.

Speaker Change: Our credit metrics are presented on slide 14. Non-performing loans increased $123 million, or 5% linked quarter, primarily driven by an individual secured loan within our asset-based lending business.

Speaker Change: Total delinquencies of 1.3 billion dollars were stable with March 31st.

Robert Q. Reilly: Net loan charge-offs were $262 million in the second quarter and included $106 million of net charge-offs related to our CRE office portfolio, and our annualized net charge-offs to average loans ratio was 33 percent. Our allowance for credit losses totaled $5.4 billion, or 1.7% of total loans on June 30th, stable with March 31st. Slide 15 provides more detail on our CRE office credit metrics. CRE office NPLs were stable in the second quarter as charge-offs and pay-downs offset inflows to non-performing loans, and the migration of criticized loans to non-performing status is an expected outcome as we work to resolve the challenges inherent to this portfolio. As expected, net loan charge-offs within the CRE office portfolio increased and totaled $106 million in the second quarter.

Speaker Change: Net loan charge-offs were $262 million in the second quarter, and included $106 million of net charge-offs related to our CRE office portfolio.

Speaker Change: And our annualized net charge-offs to average loans ratio is 33 basis points.

Speaker Change: Our allowance for credit losses totals $5.4 billion, or 1.7% of total loans on June 30th, stable with March 31st.

Speaker Change: Slide 15 provides more detail on our CRE office credit metrics.

Speaker Change: CRE office NPLs were stable in the second quarter, as charge-offs and pay-downs offset inflows to non-performing loans.

Speaker Change: And the migration of criticized loans to non-performing status is an expected outcome as we work to resolve the challenges inherent to this portfolio.

Speaker Change: As expected, net loan charge-offs within the CRE office portfolio increased and totaled $106 million in the second quarter.

Robert Q. Reilly: Ultimately, we expect additional charge-offs on this portfolio, the size of which will vary quarter to quarter given the nature of the loan. As of June 30th, our reserves on the office portfolio were 10.3% of total office loans, and inside of that, 15.5% on the multi-tenant portfolio. Accordingly, we believe we're adequately reserved. Importantly, we continue to manage our exposure down, and as a result, our balance has declined 4%, or approximately $300 million linked quarter.

Speaker Change: Ultimately, we expect additional charge-offs on this portfolio, the size of which will vary quarter-to-quarter given the nature of the loans.

Speaker Change: As of June 30th, our reserves on the office portfolio were 10.3% of total office loans, and inside of that, 15.5% on the multi-tenant portfolio.

Speaker Change: Accordingly, we believe we're adequately reserved.

Speaker Change: Importantly, we continue to manage our exposure down, and as a result, our balance has declined 4%, or approximately $300 million the linked quarter.

Robert Q. Reilly: In summary, PNC posted a solid second quarter of 2024, and we're well positioned for the second half of the year. Regarding our view of the overall economy, we're expecting continued economic growth in the second half of the year, resulting in real GDP growth of approximately 2% in 2024, and unemployment to increase modestly to slightly above 4% by year-end. We expect the Fed to cut rates two times in 2024, with a 25 basis point decrease in September and another in December.

Speaker Change: In summary, PNC posted a solid second quarter 2024 and we're well positioned for the second half of the year.

Speaker Change: Regarding our view of the overall economy, we're expecting continued economic growth in the second half of the year, resulting in real GDP growth of approximately 2% in 2024.

Speaker Change: Unemployment to increase modestly to slightly above 4% by year-end.

Speaker Change: We expect the Fed to cut rates two times in 2024, with a 25 basis point decrease in September and another in December .

Robert Q. Reilly: Looking at the third quarter of 2024 compared to the second quarter of 2024, we expect average loans to be stable, net interest income to be up 1-2%, fee income to be up 1-2%, and other non-interest income to be in the range of $150 million and $200 million, excluding visa and securities activity. We expect core non-interest expense to be up 3-4%. We expect third quarter net charge-offs to be between $250 and $300 million.

Speaker Change: Looking at the third quarter of 2024 compared to the second quarter of 2024, we expect average loans to be stable, net interest income to be up 1 to 2 percent.

Speaker Change: Fee income to be up 1 to 2 percent.

Speaker Change: Other non-interest income to be in the range of $150 million and $200 million excluding visa and securities activity.

Speaker Change: We expect core non-interest expense to be up 3 to 4 percent. We expect third quarter net charge-offs to be between $250 and $300 million.

Robert Q. Reilly: Regarding our full-year guidance, for ease of comparison to prior guidance, we exclude the first quarter FDIC special assessment, as well as the second quarter visa gain and other significant items. Considering our reported first half operating results, third quarter expectations, and current economic forecast, our full year 2024 guidance is as follows for the full year 2024 compared to the full year 2023. We expect average loans to be down less than 1%, which equates to nominal loan growth in the second half of 2024.

Speaker Change: Regarding our full-year guidance, for ease of comparability to prior guidance, we exclude the first quarter FDIC special assessment, as well as the second quarter visa gain and other significant items.

Speaker Change: Considering our reported first half operating results, third quarter expectations, and current economic forecasts, our full year 2024 guidance is as follows.

Speaker Change: for the full year 2024 compared to full year 2023.

Speaker Change: We expect average loans to be down less than 1%, which equates to nominal loan growth in the second half of 2024.

Robert Q. Reilly: We recognize the potential for greater loan growth, and should that occur, it'll be accretive to our full-year average. Nevertheless, despite lower expected loan volumes, we expect full-year NII to be at the better end of our previous expectations, or down approximately 4%. We expect our securities repositioning and better-than-expected deposit dynamics to offset the impact of the lower-than-expected loan volume. We expect non-interest income to be up 3 to 5 percent, slightly lower than our previous guidance due to continued softness in mortgage activity and, to a lesser extent, loan-related capital markets fees. As a result, total revenue is expected to be down 1 to 2 percent and inside the range of our previous guide.

Speaker Change: We recognize the potential for greater loan growth and should that occur it will be accretive to our full year average.

Speaker Change: Despite lower expected loan volumes, we expect full-year NII to be at the better end of our previous expectations, or down approximately 4%. We expect our securities repositioning and better-than-expected deposit dynamics to offset the impact of the lower-than-expected loan volume.

Speaker Change: We expect non-interest income to be up three to five percent, slightly lower than our previous guidance due to continued softness and mortgage activity, and to a lesser extent loan related capital markets fees.

Speaker Change: As a result, total revenue is expected to be down 1 to 2 percent and inside the range of our previous guidance.

Operator: We now expect core non-interest expense to be down approximately 1% versus our previous guidance of stable, in part due to our increased CIP target. And we expect our effective tax rate to be approximately 18.5%. With that, Bill and I are ready to take your questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question. You may press star two if you would like to remove your question.

Speaker Change: We now expect core non-interest expense to be down approximately 1% versus our previous guidance of stable in part due to our increased CIP target.

Speaker Change: And we expect our effective tax rate to be approximately 18.5%.

Speaker Change: With that, Bill and I are ready to take your questions.

Speaker Change: Thank you. We will now be conducting a question-and-answer session. 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. You may press star 2 if you would like to remove your question from the

Operator: 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... Our first questions come from the line of Betsy Graseck with Morgan Stanley. Please proceed with your, Hi, good morning. Hey, good morning, Betsy. So on NII, I know you guided to the upper end of the range, even though you've got slower loan growth, clearly due to your NIM improving. At least that's one driver.

Speaker Change: 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 questions.

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

Speaker Change: Hi, good morning. Hey, good morning, Betsy.

Betsy Lynn Graseck: So on NII, I know you guided to the upper end of the range, even though you've got slower loan growth clearly due to your NIM improving. At least that's one driver. There's others as well. I just wanted to understand how you're thinking about the securities restructuring from here.

Unknown Speaker: There are others as well. I just wanted to understand how you're thinking about the securities restructuring from here. Is this something that you would consider continuing, or should we look at it as a one-off from using the visa gains? And I ask just from the context of trying to think through the NIM trajectory from here. Thanks. Unknown Speaker.

Speaker Change: Is this something that you would consider continuing, or is it, we should look at it as a one-off from, you know, using the Visa gains? And I ask just from the context of trying to think through NIM trajectory from here. Thanks.

Unknown Speaker: Thank you. Thank you. Thank you. Thank you. Future Holds, but practically, at this point, we don't have to do any restructuring on anything to hit that stated goal of the, you know, the 25 record on AI. And we don't have any plans to do that.

Speaker Change: You should think of it as a one-off. I mean, you never say never, and I don't know what the future holds, but practically, at this point, we don't have to do any restructuring on anything to hit that stated goal of the 25 record on AI. And we don't have any plans to do that.

Unknown Speaker: Okay, great. And then could you speak to how you're thinking about deposit pricing and levels? I mean, clearly, there was, you know, tax-related outflows and things like that this quarter, and with loan growth being muted, should we be anticipating deposits to be stable to down? Or are you going to be out there trying to get deposit growth? Just again, asking from the context of how we should think about deposit pricing as we work through our models. Thanks so much.

Speaker Change: Okay, great. And then could you speak to how you're thinking about deposit pricing and levels? I mean, clearly there was, you know, tax-related outflows and things like that this quarter, you know, and with loan growth being muted.

Speaker Change: You know should we be anticipating

Speaker Change: Deposits.

Speaker Change: Stable to down or are you going to be out there trying to get deposit growth? Just again asking from the context of how we should think about deposit pricing as we work through our models Thanks so much. Yeah, sure. Sure. I would say the short answer to that is, you know, stable to down is our expectation

Unknown Speaker: Yeah, sure, sure. I would say the short answer to that is, you know, stable to down is our expectation, with an emphasis on stable. Things have really stabilized year over year, as you know. So our expectation is, you know, some downward drift, but not anywhere near the, you know, the level that we've seen in the last couple of years. Got it. All right. Thanks so much.

Speaker Change: with an emphasis on stable. Things have really stabilized year over year, as you know, so our expectation is some downward drift but not anywhere near the level that we've seen in the last couple of years.

Speaker Change: Got it. All right. Thanks so much. Appreciate it. Sure.

Operator: I appreciate it. Thank you. Our next questions come from the line of John Pancari with Evercore ISI. Please proceed with your questions. Good morning.

Speaker Change: Thank you. Our next questions come from the line of John Pancari with Evercore ISI. Please proceed with your questions.

Unknown Speaker: On your NII outlook, it's good to hear the NII inflection and the confidence there. However, excluding the $70 million benefit from the securities repositioning in the back half of this year, it appears that the underlying NII run rate for the back half was guided a bit lower. Is that mainly loan growth that's the driver? I mean, if you could just talk through that a little bit in terms of the factors impacting that run rate. The Rabbis were staring at each other; it wasn't, if he backed out the restructuring, God would still be higher. If we did that... Unknown Speaker.

John G. Pancari: Good morning.

John G. Pancari: On your NII outlook, it's good to hear the NII inflection and the confidence there, excluding the $70 million benefit from the securities repositioning in the back half of this year,

John G. Pancari: I mean, it appears that the underlying NII run rate for the BALCAP was guided a bit lower. Is that mainly bone growth that's the driver? I mean, if you could just talk through that a little bit in terms of the factors impacting that run rate.

Speaker Change: Rabbi are staring at each other, it wasn't, if he backed out the restructuring, God would still be higher.

Speaker Change: If we did that...

Unknown Speaker: Unknown Speaker, Unknown Speaker, And we did that because we kind of just got tired of saying that, hey, loan growth is going to come at some point. So we took it out of the forecast. If it shows up, we'll benefit like everybody else. I think that's an important point. That's a big difference this quarter.

Speaker Change: [inaudible]

Unknown Speaker: We changed our guidance for average loans to be up 1% or approximately 1% for the year, John. But as you can see, it is now down less than 1%. We don't control that. But there's a basis for some loan growth in the second half of the year. But the important point is we've taken it out of our guidance, and our NII improves to the better end of the previous guidance, not just due to the securities restructuring but also the positive deposit dynamics, and so. All right. Now, thanks for the clarification. It helps.

John: I think that's an important point. That's a big difference in this quarter. We've changed our guidance for average loans to be up 1% or approximately 1% for the year, John . As you can see now, down less than 1%.

John: We don't control that, you know, there's a basis for some loan growth in the second half of the year, but the important point is we've taken it out of our guidance, and our NII improves to a better end of the previous guidance, not just due to the securities restructuring, but also deposit-to-deposit dynamics and so forth.

Unknown Speaker: And then just separately on the capital, on the capital front, clearly the OCI benefit from the Securities Repositioning is certainly noted. How does that, how do you feel now in terms of the pace of buybacks as you look out? Just given where you stand now on CEP-1 and from a fully phased in, how does that make you feel about the pace of buybacks here? Could it remain at the 100 million pace per quarter or possibly accelerate?

Speaker Change: Okay. All right. Now, thanks for the clarification. That helps. And then, just separately on the capital front, clearly, the OCI benefits from the

Speaker Change: Securities Repositioning is certainly noted. How does that – how do you feel now in terms of the pace of buybacks as you look out just given where you stand now on –

Speaker Change: on CET-1 and from a fully phased in, how does that make you feel about the pace of biovax here? Could it remain at the 100 million pace per quarter or possibly accelerate?

Unknown Speaker: Yeah, I mean, right now, we're on pace. And we continue to, we expect to continue at the pace that we've been on for the first couple of quarters. And as you know, the new rules are still in flux.

Speaker Change: Yeah, I mean right now we're on pace, and we continue to, we expect to continue the pace that we've been on for the first couple of quarters, and as you know, the new rules are still in flux.

Unknown Speaker: So there's not, you know, finalization there. And then beyond that, I think, you know, a driver will be what happens with loan growth, which would be a factor in terms of that being our highest and best use of our capital, but that'll be a factor in terms of, you know, deciding on buybacks. But the important part is that we are buying back shares. I think, John, just on buybacks, I mean, at some point.

Speaker Change: So there's not, you know, finalization there.

Speaker Change: And then beyond that, I think, you know, a driver will be what happens with loan growth, which would be a factor in terms of that being our highest and best use of our capital.

Speaker Change: But that'll be a factor in terms of, you know, deciding on buybacks. But the important part is that we are buying back shares.

John: I think, John , just on buybacks, I mean, at some point, I gotta believe loan growth comes back. But to the extent it doesn't, we're generating a lot of capital, obviously in excess of our dividend, and we'll face that question if we're not using that capital for loan growth.

Unknown Speaker: I have to believe loan growth comes back. But to the extent it doesn't, we're generating a lot of capital, obviously, in excess of our dividend. And we'll face that question if we're not using that capital for loan growth. Accelerate Deployment and Buybacks. We're not there yet, but that will happen down the road if Loan Group doesn't materialize because we're generating a lot of capital.

John: you know, should we accelerate deployment and buy backs? We're not there yet. But that happens down the road. If Lome Grove doesn't materialize because we're generating a lot of capital.

Unknown Speaker: Okay, that's helpful. Thanks, Bill. Thank you. Our next questions come from the line of Erika Najarian with UBS. Please proceed with your, Hi, good morning. Good morning.

John: Got it. Okay, that's helpful. Thanks, Bill.

Speaker Change: Thank you. Our next questions come from the line of Erika Najarian with UBS. Please proceed with your questions.

Unknown Speaker: Going back to slide 9, I presume that the stabilization and deposit rate paid is quite notable as part of the, you know, upgrade of the core NII guide, even without the restructuring. And you answered, Rob, Betsy's question, I gather, on a balances standpoint, but perhaps you could give us a sense of how you think deposit rates paid will trend from here and maybe, you know, under the scenario of rates staying where we are versus the scenario of what the forward curve is pricing and how quickly you may be able to reprice. Yes, sure. That's our plan.

Erika Najarian: Hi, good morning.

Speaker Change: Going back to slide 9, I presume that the stabilization and deposit rate paid, which is quite notable as part of the upgrade of the core NII guide, even without the restructuring.

Speaker Change: And you answered, Rob, Betsy's question, I gather, on a balances standpoint.

Speaker Change: But perhaps give us a sense on how you think deposit rate paid will trend from here and maybe under the scenario of rates staying where we are versus the scenario of what the forward curve is pricing and how quickly you may be able to reprice.

Unknown Speaker: So slide nine is a good slide, and it clearly shows a decline in the increase in the rate paid. The short answer to one of your questions there is, you know, we do expect the rates may go up a little bit. But, you know, in contrast, it's more like a handful of basis points versus the contrast to the previous quarters, where you see 60 or 50 and even 30, in recent quarters, so it's slowed down considerably.

Speaker Change: Slide 9 is a good slide and it clearly shows a decline in the increase of the rate paid.

Speaker Change: The short answer to one of your questions there is, you know, we do expect the rates may pay to drift up a little bit.

Speaker Change: But, you know, in contrast, more like a handful of basis points versus the contrast to the previous quarters where you see 60 or 50 and even 30 in recent quarters. So it's slowed down considerably.

Unknown Speaker: That's our expectation in the short term, Erika. When we get into rate cuts, we'll see. You know, we'll be able to move pretty quickly on the high rates paid on commercial and wealth, but we still do have these interest-bearing consumer deposits that are below market, and they will grind higher. So, you know, that's something that we've talked about before and just something that we'll need to keep our eye on. And my second question refers back to slide six in terms of the forward starters.

Erika Najarian: That's our expectation in the short term, Erika. When we get into rate cuts, we'll see, you know, we'll be able to move pretty quickly on the high rates paid on commercial and wealth.

Erika Najarian: But we still do have these interest-bearing consumer deposits that are below market that will grind higher. So that's something that we've talked about before and just something that we'll need to keep our eye on.

Erika Najarian: Got it. And my second question...

Speaker Change: It refers back to slide six in terms of the forward starters.

Unknown Speaker: When I look back at your 10-Q disclosure, it seems like you're largely neutral to interest rates. And I know that you and Bill have talked a lot about the different factors that drive the inflection point of the Nike swoosh.

Speaker Change: When I look back at your 10-Q disclosure, it seems like you're largely neutral to interest rates. And I know that you and Bill have talked a lot about the different factors that drive the inflection point in the Nike swoosh.

Unknown Speaker: I'm wondering if the addition of the $18 billion in forward starters with the received fix of 431, does that impact the magnitude of the swoosh for 2025? That's a good question. Well, my my answer to that would not necessarily be the magnitude, but the certainty. Yeah, so essentially, what we've done is locked, locked in some of the swoosh. Yeah, you know, probably 50 basis points. One of the issues, of course, when everybody talks about fixed rate asset repricing. Price, too.

Speaker Change: I'm wondering if the addition of the $18 billion in forward starters with the received fix of $431 billion, does that impact the magnitude of the swoosh for 2025?

Speaker Change: That's a good question. Well my answer to that would not necessarily be the magnitude but the certainty. Yes. So essentially what we've done is locked locked in some of the swoosh.

Speaker Change: [inaudible]

Unknown Speaker: And of course, therefore, we are exposed to whatever that, you know, five-year rate is. You know, a year and two out, and those forward starting swaps are simply, at a very opportunistic point, locked in materially higher rates than where we are today. Just to Rob's point.

Speaker Change: What is it repriced to? And of course, therefore we are exposed to whatever that, you know, five-year rate is.

Speaker Change: You know, a year and two out, and those forward-starting swaps simply...

Speaker Change: But a very opportunistic point locked in materially higher rates than where we are today. To Rob's point, that just locks in the certainty of what we'll be able to produce on a go-forward basis.

Unknown Speaker: Lots in the certainty of what we'll be able to produce on a go. Bill, I think that's such a good point because I think when people are thinking of fixed asset repricing, sometimes they misthink about the 525 as opposed to whatever. It could be at 4, right, by the end of next year, and to that, to your point, you know, you've locked in the certainty.

Speaker Change: Thank you.

Unknown Speaker: Okay. Thank you. Our next questions come from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Good morning, everyone.

Speaker Change: Thank you. Our next questions come from the line of Scott Siefers with Piper Sandler. Please proceed with your questions.

Unknown Speaker: Thanks for taking the question. Rob, I was hoping you could maybe touch on sort of major key components in light of the software expectation. I mean, it sounds like it's just a, or mostly a function of mortgage, which you know, sort of is what it is. But just curious to hear, sort of what do you think is going well? What'll need a heavy lift?

Robert Scott Siefers: Good morning, everyone. Thanks for taking the question.

Robert Scott Siefers: Rob, I was hoping you could maybe touch on sort of major key components in light of the software expectation. I mean it sounds like it's just a, or mostly a function of mortgage, which you know sort of is what it is. I'm just curious to hear sort of what do you think is going well, what will need heavy lift, that kind of thing.

Unknown Speaker: It's mostly a refinement, Scott. For the full-year guide around the fees, we lowered our expectations of an increase from up 4% to 6% to up 3% to 5%, so still up, but a small shift, most of that coming from continued softness in mortgages, which we expect to continue in the second half of the year, a little bit less than what we were expecting. To a lesser extent tied to the reduced loan guidance. We do have loan-related fees within our capital market segment; think loan syndication. So generally speaking, if there are fewer loans, there'll be fewer loan syndication fees. So that's just a direct correlation there to that guide.

Rob: Yeah, it's mostly a refinement Scott so you know for the full year guide around the fees

Speaker Change: We lowered our expectations of increase from up 4% to 6% to down up 3% to 5%, so still up and a small shift, most of that coming from continued softness in mortgage.

Robert Scott Siefers: which we expect to continue in the second half of the year, a little bit less than what we were expecting, to a lesser extent tied to the reduced loan guidance.

Robert Scott Siefers: We do have loan-related fees within our capital markets segment.

Speaker Change: Thank you.

Speaker Change: So that's just a direct correlation there to that guide. And again, you know, we could see long growth, and if that's the case, then those fees would come back. But that's the general thinking, everything else, you know, on schedule, so to speak.

Unknown Speaker: And again, you know, we could see loan growth, and if that's the case, then those fees would come back. But that's the general thinking; everything else, you know, on schedule, so to speak. Okay, perfect. Thank you, Rob.

Unknown Speaker: And then I wanted to ask a little bit of a kind of fine-tuned question on loan growth. I think, Bill, in your sort of prepared remarks, you noted the introduction of your first new credit card in a while, as well as plans to introduce more. Can you sort of contextualize your aspirations for that business and sort of the path to get to overtime?

Speaker Change: Okay, perfect. Thank you, Rob. And then I wanted to ask a little bit of a kind of fine-pointed one on

Speaker Change: Long growth. I think, Bill, in your...

Speaker Change: [inaudible]

William S. Demchak: Yeah, I mean, basically, we want to have our fair share of consumer lending products with the clients we serve, you know, in our traditional DDA and other products, and we don't today. You know, we're there on home equity, we're probably close to mortgage, we're under penetrated. You know, we need to improve, and it's an opportunity.

Bill: Yeah, I mean, basically, we want to have our...

Bill: Fair share of consumer lending products with the clients we serve, you know, in our traditional DDA and other products. And we don't today. You know, we're there on home equity, we're probably close in mortgage, we're under-penetrated in auto.

Speaker Change: And in CARD, and in CARD in particular, we just haven't had good offerings. We've had stale technology. We've had slow. Yeah, we weren't, you know, we need to improve and it's an opportunity for us.

William S. Demchak: Okay. All right. Perfect. All right. Thank you guys very much.

Speaker Change: Okay. All right. Perfect. All right. Thank you guys very much.

Unknown Speaker: 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: Thank you. Our next questions come from the line of Ebrahim Poonawala with the Bank of America. Please proceed with your questions.

Unknown Speaker: I guess maybe, Rob, just it looks like you've locked in a lot of asset repricing as we think about where the name should normalize from relative to 2.6. Give us a sense of what you probably have. I mean, you probably have this number. Do we hit 3% at some point next year? In terms of what the normalized rate would be and whether we can get to a 3% plus name next year, even maybe four or five late cuts? Sure. But, you know, we don't necessarily provide NIM guidance because it's more an outcome than anything.

Speaker Change: and good morning.

Speaker Change: Thank you.

Ebrahim Huseini Poonawala: Give us a sense, I mean you probably have this number, do we hit 3% at some point next year?

Ebrahim Huseini Poonawala: In terms of what the normalized rate would be and can we get to a 3% plus NIM next year even with maybe four or five late cuts?

Speaker Change: Sure, so, you know, we don't necessarily provide NIM guidance because it's more an outcome than anything.

Unknown Speaker: But to answer your question, you know, we've operated in, you know, call it a normal environment at a 3% NIM margin. So, we definitely expect to go up into 25. If we approach those levels, it won't be like we haven't been there before. So, it's reasonable. Go ahead.

Speaker Change: To answer your question, you know, we've operated in, you know, call it a normal environment at a 3% NIM margin. So, if we, we definitely expect to go up into 25. If we approach those levels, it won't be like we haven't been there before. So, it's reasonable.

Unknown Speaker: And just one quick one on credit quality. I think I heard Bill say not a whole lot about the ex-CRE office, but give us a sense if you're seeing any cracks within the CNI customer base from the prolonged period of just higher for longer rates. How do you handicap the risk of a downturn or a recession over the coming months or the next year?

Speaker Change: And just one quick one on credit quality. I think I heard Bill say, not a whole lot ex-CRE office, but give us a sense if you're seeing any cracks within the C&I customer base from the prolonged period of like just higher for longer rates.

Speaker Change: Just how do you handicap the risk of a downturn or a recession over the coming months or the next year?

Unknown Speaker: When we take a look at our total reserves and our total portfolio, CRE office aside, things are pretty stable. Maybe on a quarter-to-quarter basis, consumers are a little bit better, commercial non-CRE is a little bit worse, but not bad. Definitely some more movement, some downgrades, reflecting the higher rates, slower economic activity in our commercial book, but no patterns or any themes. I don't have to point out that

Speaker Change: Yeah, so, you know, when we take a look at our total reserves and our total portfolio, CRE office aside, you know, things are pretty stable, maybe on quarter-to-quarter basis, consumers a little bit better, commercial non-CRE is a little bit worse.

Speaker Change: But not bad. So, you know, definitely some more movement, some downgrades reflecting the higher rates, you know, slower economic activity in our commercial book, but no patterns or any themes to point out.

Unknown Speaker: Go ahead. And the outlook for reserves is stable from 2Q? Reserves are stable, yeah. Got it.

Speaker Change: Thank you.

Unknown Speaker: Thank you. Thank you. Our next questions come from the line of Bill Carcache with Wolf Research. Please proceed with your, Thanks. Good morning, Bill and Rob.

Speaker Change: Thank you. Our next questions come from the line of Bill Carcache with Wolf Research. Please proceed with your questions.

Unknown Speaker: Following up on your NIM and NII commentary, is there a point where you would start to worry that those rate cuts would potentially begin to negate some of the repricing benefit? And then, separately, amid the debate over whether the curve is going to steepen or flatten, depending on the outcome of the election, maybe could you just give us a little bit of a perspective on how PNC is positioned for either a flatter or a steeper yield curve environment? We're largely indifferent.

Speaker Change: Thanks, good morning Bill and Rob. Following up on your NIM and NII commentary, is there a point as we start to get cuts where

Speaker Change: You would start to worry that those rate cuts would potentially begin to negate some of the repricing benefit. And then separately, amid the debate over whether the curve is going to steepen or flatten depending on the outcome of the election,

Speaker Change: Maybe could you just give us a little bit of a, you know, perspective on how PNC is positioned for either a flatter or a steeper yield curve environment?

Unknown Speaker: I mean, it's a very, very marginally benefitted when the Fed cuts rates from a floating rate. Of course, we're exposed to the steepness of the curve because that plays in the, you know, how we reprice maturing fixed rates. That's a variable. It's a variable for us. It's a variable for everybody. It's one of the reasons we live.

Speaker Change: Sure. We're largely indifferent. I mean, at the very, very margin, we benefit of, you know, on the Fed's rates from a floating rate standpoint.

Speaker Change: Of course, we're exposed to the steepness of the curve because that plays into how we re-price maturing fixed rate assets, and that's a variable, it's a variable for us, it's a variable for everybody. It's one of the reasons we lock some of it in.

Unknown Speaker: My own belief and our positioning is such that even though, you know, we would expect the Fed to cut here, I think in the end, somewhat sticky inflation, the fact that deficits matter. [inaudible] I just think we're in a good place. We had a good time.

Speaker Change: My own belief and our positioning is such that even though, you know, we would expect the Fed to cut here, I think in the end, somewhat sticky inflation, the fact that deficits matter.

Speaker Change: You know it's gonna cause the curve to steepen out so we locked some of it in I don't feel terribly worried about the need to lock the rest of it in I just think we're in a good place. We're gonna do fine

Unknown Speaker: Okay. Unknown Speaker. That's helpful. And then on the asset quality side, slide 14 shows that steady upward trajectory in MPLs, but the reserve rate is relatively stable to down slightly, as you mentioned. And so it looks like the lost content that you see in the portfolio is stable. It's certainly not rising despite the rising MPLs.

Speaker Change: Okay.

Speaker Change: That's helpful. And then on the asset quality side, slide 14 shows that steady upward trajectory in MPLs, but the reserve rate is relatively stable to down slightly as you mentioned.

Speaker Change: So it looks like the lost content that you see in the portfolio is stable, it's certainly not rising, despite the rising MPLs.

Speaker Change: You know, maybe could you speak a little bit to that and, you know, are there any implications of loan repricing that you are concerned about? For example, would you expect any impact on the credit performance of your customers as their loans begin to reset, you know, to higher rates?

Unknown Speaker: Maybe you could speak a little bit about that? And you know, are there any implications of loan repricing that you are concerned about? For example, would you expect any impact on the credit performance of your customers as their loans begin to reset, you know, to higher rates? I mean, just, Quickly, the movement from, you know, particularly in office CRE, right from criticized and non-performing related reserve and charge us is ongoing, as we've expected. That's the natural progression of that cycle. Nothing's changed.

Speaker Change: Thanks. I mean, just quickly, the...

Speaker Change: The movement, particularly in the office area, from criticized to non-performing, related reserving and charge-offs is ongoing as we've expected.

Speaker Change: That's the natural progression of that cycle. Nothing's changed. We're not surprised by anything.

Unknown Speaker: We're not surprised by it. You know, credit quality of Corporate America as it relates to, you know, at what point do the people who have locked in fixed rates and low rates start to have to pay more, you know, ultimately at the margin? going to impact. You know, the way we rate somebody. I think about multifamily as an example where higher rates have hurt coverage ratios. It's not going to cause losses, but it's caused us to downgrade that asset class simply because of the X. I think that'll see through to corporate America over a period of time.

Speaker Change: were reserved for it.

Speaker Change: You know, credit quality.

Speaker Change: of corporate America as it relates to, you know, at what point do the people who have locked in fixed rates and low rates start to have to pay more? You know, ultimately, at the margin, it's going to impact

Speaker Change: [inaudible]

Speaker Change: you know, the way we rate somebody. I think about multifamily as an example where higher rates, you know, have hurt coverage ratios. It's not going to cause losses, but it's caused us to downgrade that asset class simply because the excess isn't there. And I think that'll flow through to corporate America over a period of time as well.

Unknown Speaker: But I'm not particularly worried. And I just add that our reserves are adequate. The increase in the non-CRE NPLs in commercial real estate really was one single large credit. That is, in our business credit, fully secured loans. And not in the U.S.

Speaker Change: But I'm not particularly worried about it.

Speaker Change: And I just add that our reserves are adequate. The increase in the non-CRE NPLs in commercial really was one single large credit. That is, in our business credit, fully secured loans. And not in the U.S. So it doesn't have a lot of lost content.

Unknown Speaker: So it doesn't have a lot of lost content. Understandable. Thanks, Bill and Robert. Bill, if I could squeeze in one last one for you,

Unknown Speaker: I wanted to get your thoughts on the FedNow Instant Payment Services, which has been getting some attention. Is there a fee opportunity there? I guess, you know, what level of engagement are you seeing from PNC customers? Do you see potential for lower cost, instant, you know, digital payments, disintermediating debit? It would be helpful to hear your thoughts on the overall risks versus potential benefits of that.

Speaker Change: Understood. Thanks, Bill and Rob. Bill, if I could squeeze in one last one for you. I wanted to get your thoughts on the FedNow Instant Payment Services, which has been getting some attention. Is there a fee opportunity there?

Speaker Change: What level of engagement are you seeing from PNC customers? Do you see potential for lower cost instant digital payments, disintermediating debit? Just be helpful to hear your thoughts on the overall risks versus potential benefits of that.

William S. Demchak: PNC. I don't think FET now has any impact on PNC. To be honest with you, we've been active with real-time payment, and the clearinghouse and the use cases, all the ones you can think about, you know, from insurers who want to pay add or subtract anything to that opportunity. The challenge you have with real-time payments, both at the clearinghouse and FedNow at the Fed, is that they are not networked. They are able to move money, and the distinction between that is that the network has very clear rules. Who's responsible for items that don't transmit the right way? Who's responsible for fraud?

Unknown Executive: to PNC Hub.

Unknown Executive: Valhalla

Speaker Change: I don't think FedNow has any impact on PNC, to be honest with you. We've been active with real-time payments.

Speaker Change: In the clearinghouse and the use cases, all the ones you can think about, you know, from insurers who want to pay, you know, real time claims in a disaster through to certain payroll capabilities through to, you know, Zelle, for example, and FedNow doesn't.

Speaker Change: Add or subtract anything to that opportunity. The challenge you have...

Speaker Change: With real-time payments, both at the clearinghouse and FedNow at the Fed, is they are not networks. They are a rail-to-move money, and the distinction between that is a network has very clear rules.

Speaker Change: Who's responsible for items that don't transmit the right way? Who's responsible for fraud? Who's responsible for returns?

Unknown Speaker: Who's responsible for returns? and neither of those two networks purposely were billed. I'm sorry, neither of those two payment reels purposefully repel the payment internet, which is... Preach. Thank you for taking my questions. Thank you. Our next questions come from the line of Ken Usdin with Jeffries. Please proceed with your question. Hey, thanks a lot. Good morning.

Speaker Change: on and on and on, and neither of those two networks purposefully were billed, or sorry, neither of those two payment grills purposefully were billed to pay on cash. They're just, they're not for that use purpose, they're for moving money.

Speaker Change: Which is very true. So I don't think long-term has much of an impact in the U.S.

Speaker Change: Thank you for taking my questions.

Speaker Change: Thank you. Our next questions come from the line of Ken Usdin with Jeffries. Please proceed with your questions.

Unknown Speaker: You guys gave us that great, great table last December with the repricing of fixed assets through 2025. And I'm just wondering, you know, how much carry forward does it with there? Will there also be through 26?

Unknown Speaker: Do we should think about that kind of realistically? Obviously, it's been six months since you gave us that slide. But I was just wondering just how that plays out as we look further ahead? Thanks.

Kenneth Michael Usdin: Hey, thanks a lot. Good morning. You guys gave us a great, great table last December with the repricing.

Kenneth Michael Usdin: of Fixed Assets through 2025. And I'm just wondering, you know, how much carry forward will there also be through 26? Should we think about that kind of radibly? Obviously, it's been six months since you gave us that slide.

Speaker Change: Just wondering just how that rolls as we look further ahead. Thanks.

Unknown Speaker: Well, Ken, we're going to refrain from 26 guidance on the call here today, but it'll continue to increase. You know, the real change in the dynamic occurs, obviously, in that first and second quarter of 25 and then grows from there. Okay, yeah, that's why I'm asking the building blocks question as opposed to the question.

Speaker Change: Well, Ken, we're going to refrain from 26 guidance on the call here today, but it'll continue to increase.

Speaker Change: You know, the real change in the dynamic occurs, obviously, in the first and second quarter of 25, and then grows from there.

Speaker Change: Okay, yeah, that's why I'm asking the building blocks question as opposed to the question. Okay, understood. And then on the expenses, so you guys have been doing a great job holding the line, and I just wanted to ask, like, it looks like there's a pretty decent rampage into the second half on expenses, and I'm just wondering, like, what influences that? Because it seems like expenses will be growing faster than revenues in the second half, so...

Unknown Speaker: Okay, understood. And then on the expenses, so you guys have been doing a great job holding the line. And I just wanted to ask, like, there looks like there's a pretty decent rampage into the second half on expenses. And I'm just wondering, like, what influences that?

Unknown Speaker: Because it seems like expenses will be growing faster than revenues in the second half, or certainly faster than fees. So is that conservatism? There's some catch up on investments that you're making. Any context on that? Thanks, Rob. Yeah, sure, sure. Now, we've outperformed in the first half, no doubt about that, and we feel great about that. And that's one of the reasons why we increased our CIP goal and also increased our guidance for the full year expenses. In the third quarter, it doesn't all happen uniformly.

Speaker Change: [inaudible]

Speaker Change: Yeah, sure. Sure. Now, we've outperformed on the first half, no doubt about it. We feel great about that, and that's one of the reasons why we increased our CIP goal and also increased our guidance for the full-year expenses.

Unknown Speaker: In the third quarter, we do have some investments coming online, technology investments coming online that bring some depreciation expense. We've got an additional day, those sorts of things. So it's all part of the plan, it's just expenses don't fall uniformly throughout the year. Okay, I got it. And then obviously, as that plays forward, and if NII is better next year, you can also afford more cost growth, but we'll hear about that later. Yeah, that's right.

Speaker Change: In the third quarter, it doesn't all happen uniformly, in the third quarter, we do have some investments coming online, technology investments coming online that bring some depreciation expense.

Speaker Change: We've got an additional day, those sorts of things. So it's, you know, it's all part of the plan, it's just expenses don't fall uniformly throughout the year.

Speaker Change: Okay got it and then obviously as that plays forward and if NII is better next year you can also afford more cost growth but we'll hear about that later. Yeah that's right.

Speaker Change: Got it. Thank you. Sure.

Unknown Speaker: Got it. Thank you. Thank you. Our next questions come from the line of Mike Mayo with Wells Fargo. Please proceed with your. Hi, similar to some of the others, maybe this is like the game of Jeopardy.

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

Unknown Speaker: I think the answer is, You have a continued improvement program with expense savings going from $425 million up to $415 million. You have securities repositioning that's giving you a boost to NII for the rest of this year. And you have fixed asset repricing that helps your securities, at www.pncfinancial.com.

Michael Lawrence Mayo: Hi. Similar to some of the others, maybe this is like the Game of Jeopardy. I think the answer is...

Speaker Change: You have continued improvement program with expense savings going from $425 million up to $415 million. You have securities repositioning that's giving you a boost to NII for the rest of this year. And you have fixed asset repricing that helps your securities.

Speaker Change: yield go up by 400 basis points your forward payments slots go up 180 basis points and a little bit some other things so the you know the

Unknown Speaker: The answer is. You know, all those things are going in the right direction, yet you still have a guide for negative operating leverage for this year. I guess, what is the question or why is that, or you can't eke it out or... Oh, sure. So, no, no, the question... What's going on and why should we... Yeah, yeah, go ahead.

Speaker Change: The answer is...

Speaker Change #100: You know, all those things are going in the right direction, yet you still have a guide for negative operating leverage for this year.

Speaker Change #101: So I guess what is the question or why is that or you can't eke it out or... Well sure, so... What's going on and why should... yeah, yeah, go ahead. Yeah, so just to keep with your Jeopardy approach there, the question would be what's loan growth going to be in the second half?

Unknown Speaker: Yeah, so just to keep with your Jeopardy approach here, the question would be, what's loan growth going to be in the second half? Bill, you were very adamant three quarters ago about loan growth. And look, if you get NII in your range, even without getting loan growth, you know, I think people would rather take that than not. But we're hearing all the capital, the biggest capital market players are, you know, just gushing with their expectations that this is a big capital markets recovery, the world's back, everything's else. H8 data actually showed a little bit better.

Speaker Change #102: Okay, that's helpful.

Speaker Change #102: Bill, you were very adamant three quarters ago about loan growth, and look, if you get NII in your range, even without getting loan growth, you know, I think people would rather take that than not, but we're hearing all the capital, the biggest capital market players are, you know, just...

Speaker Change #102: Gushing.

Speaker Change #103: with their expectations that this is a big capital markets recovery, the world's back, everything's else. H8 data actually showed a little bit better. I think you might have underperformed the H8 data this quarter on loan growth. So is it...

Unknown Speaker: I think you might have underperformed the H8 data this quarter on loan growth. So is it A, you're just being more prudent and conservative and you're not seeing the pricing that you want? Or B, your mix is just a little bit different? Or C, maybe your team's not executing quite as well as you'd like them to do?

Speaker Change #104: A, that you're just being more prudent and conservative and you're not seeing the pricing that you want, or B, your mix is just a little bit differently, or C, maybe your team's not executing quite as well as you'd like them to do.

William S. Demchak: I think you're trying to read into this too hard. We look, we're basically on H8, maybe a little soft on consumer because our cardbook didn't grow. But when C&I comes back, it will grow.

Speaker Change #105: I think you're trying to read into this too hard. Look, we're basically on H8, maybe a little soft on consumer because our card book didn't grow. When C&I comes back...

William S. Demchak: Traditionally, we'll do better. We've actually been adding DAT. They're just not drawing it.

Speaker Change #106: Traditionally, we'll do better. We've been actually adding DAT. They're just not drawing it. We're winning clients. All we did, Mike, was this whole notion of...

William S. Demchak: We're winning clients. All we did, Mike, was this whole notion of... If we're giving guidance on the expectation in some crystal ball that says there's going to be loan growth when, thus far, we don't see evidence of it, we just took it out. If it shows up.

Michael Lawrence Mayo: You know, if we're giving guidance on the expectation in some crystal ball that says there's going to be loan growth when thus far we don't see evidence of it, we just took it out. If it shows up...

William S. Demchak: Then it's additive to everything we do. And we certainly aren't underperforming. We're winning clients at a pace that we never have. So it's literally this notion of, what do they draw on the lines?

Michael Lawrence Mayo: Then it's additive to everything we do.

Michael Lawrence Mayo: And we certainly aren't underperforming, we're winning clients at a pace that we never have.

William S. Demchak: And we just quit; we got tired of talking about it. When they do it, they will benefit, and it'll add to all of those numbers. And any meat on those bones about customer acquisition, you did mention 51% loan utilization. That seems like a pretty low level versus 53% a year ago and 55% historically. So I guess that would back up what you're saying.

Michael Lawrence Mayo: So it's literally this notion of when do they draw in lines, and we just quit, we got tired of talking about it. When they do it, we'll benefit, and it'll add to all of those numbers that you're looking at.

Speaker Change #107: And any meat on those bones about customer acquisition? You did mention 51% loan utilization. That seems like pretty low level versus 53% a year ago and 55% historical. So I guess that would back up what you're saying, but how much are you growing loans? You expanded to so many MSAs and implemented teams and did all that stuff that helps sometimes and other times doesn't help as much.

Unknown Speaker: But how much are you growing loans? You expanded to so many MSAs and implemented teams and did all that stuff that helps sometimes and other times doesn't help as much. Yeah, I don't know. Do you know DHE numbers?

Unknown Speaker: No, I don't know. I don't know off the top of my head. But we've grown exposures. One client set a pace well beyond, particularly in the new markets, but overall, well beyond what we've managed to do historically. We ought to, and we will.

Speaker Change #108: Do you know DHE numbers? No, I don't know off the top of my head. We've grown exposures and we've...

Speaker Change #109: We've won clients at a pace well beyond, particularly in the new markets, but overall well beyond what we've managed to do historically. We ought to...

Unknown Speaker: I will produce some of those metrics for you. And just last follow up on that, because Bill, you've been around for a while, and Rob, the disconnect between what we're hearing and seeing in the capital markets and that activity picking up versus the still subdued loan growth, as you say, CapEx inventory is low, it just seems CEO confidence is up, people are ready to do all sorts of things, yet when the rubber meets the road with you guys, you're just not seeing it You're trying to isolate us, and we're not isolated.

Speaker Change #109: and we will.

Speaker Change #110: I don't know, I'm pretty sure some of those met.

Speaker Change #110: [inaudible]

Speaker Change #110: And just last follow-up on that, because, Bill, you've been around for a while, and Rob, the disconnect between what

Speaker Change #111: We're hearing and seeing in the capital markets and that activity picking up versus the still subdued loan growth, as you say, CapEx, inventory or loan. It just seems CEO confidence is up, people are ready to do all sorts of things, yet when the rubber meets the road with you guys, you're just not seeing it that much.

William S. Demchak: I would happily tell you loan growth is going to be 2%, which is what all our peers are going to say. And if they hit 2%, if we hit 2%, or, sorry, if they hit 2%, then we'll hit 2%. Or maybe a little better.

Speaker Change #112: You're trying to isolate us and we're not isolated. I would happily tell you loan growth is going to be 2% which is what all our peers are going to say and if they hit 2%, if we hit 2% or sorry if they hit 2% then we'll hit 2%. Or maybe a little better. Yeah.

William S. Demchak: I just, I don't see anything suggesting that it's going to happen. So maybe, I mean, what would you rather have us do here? You know, put in our forecast a number we hope this happens number or just give you numbers that we know are. No, I understand under promise never to deliver it. It's what you know, you try to do.

Speaker Change #113: I just, I don't see anything suggesting that's going to happen. So maybe, I mean, what would you rather have us do here?

Speaker Change #113: You know put on our forecast a

Speaker Change #113: We hope this happens number. We're just giving numbers that we know are going to happen.

William S. Demchak: It's just, in the past, you said, at this stage of the cycle, and historically, you've seen loan growth come back. So it sounds like the cycle might be, it might be a little bit different, might not. Yeah, I think, you know, I've spent a lot of time pondering this, Mike, I don't, You know, look at the margin. It's got to be that the cost of holding inventory, right, just the cost of that drawn revolver is, you know, big time on the radar of corporates who are managing their own profitability.

Speaker Change #114: No, I understand. Under promise, never deliver. It's what, you know, you try to do. It's just, in the past, you said, at this stage of the cycle,

Speaker Change #115: And historically, you've seen loan growth come back, so it sounds like the cycle might be, it might be a little bit different, might not be.

Speaker Change #115: Yeah, I think, you know, I've spent a lot of time pondering this, Mike. I don't...

William S. Demchak: If you can run the lower inventory, your interest rates, you know, go way down when fed funds are, you know, five and a quarter percent. So I think that's part of it. I think this whole uncertainty as we come up into the election on, Yeah, what's it gonna look like from a regulatory basis? What am I allowed to invest in?

Michael Lawrence Mayo: You know, look, at the margin, it's got to be that the cost of holding inventory, right? Just the cost of that drawn revolver.

Michael Lawrence Mayo: is, you know, big time on the radar of corporates who are managing their own profitability. If you can run the lower inventory, your interest rates, you know, go way down when Fed funds is, you know, five and a quarter percent. So I think that's part of it. I think this whole uncertainty as we come up into the election on...

Michael Lawrence Mayo: What's it gonna look like from a regulatory basis? What am I allowed to invest in? Am I gonna get it approved? All of that, there's a lot of pent-up energy behind that, and we'll see. But I don't know, and it literally was this thing of,

William S. Demchak: Am I gonna get it approved? All of that, there's a lot of pent-up energy behind that, and we'll see. But, you know, I don't know, and it literally was this thing of, rather than keep guessing and wishing, if it happens, it's a great outcome. But we don't need to rely on it.

Michael Lawrence Mayo: You know, rather than keep guessing and wishing, if it happens, it's a great outcome. But we don't need to rely on it.

Unknown Speaker: Got it. Okay. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone.

Speaker Change #116: Got it. Okay. Thank you.

Speaker Change #119: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.

Unknown Speaker: Our next questions come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your, Bill, having heard you guys talk too much about credit cards, you mentioned a new product and some more coming and, you know, just thoughts on... Kind of the strategy for CARD going forward and, you know, to target a customer and then any interest in acquiring portfolios, which has, you know, not really been on the radar in the past. We're not going to acquire portfolios.

Speaker Change #118: Our next questions come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your questions.

Matt O'connor: Good morning. Bill, haven't heard you guys talk too much about credit card and you mentioned a new product and some more coming and you know just thoughts on

Matt O'connor: [inaudible]

Speaker Change #124: We're not going to acquire portfolios. The product that we have historically offered our existing clients and the service levels, websites, processing that went along with it.

William S. Demchak: The product that we have historically offered our existing clients and the service levels, websites, and processing that went along with it are less than what we aspire to. We have an ability to get higher penetration with our existing clients, offer them better products, and have better technology. Historically, we prioritize tech investments inside of our core retail space.

Speaker Change #123: or less than what we aspire to.

Speaker Change #120: We have an ability to get higher penetration with our existing clients, offer them better products, have better technology. Historically, we prioritize tech investments inside of our core retail space, so think online, mobile, real time.

William S. Demchak: So think online, mobile, real time. We just haven't put the same energy, although about a year ago we started to, into what we do with credit cards. Some of that is... Service Technology, Ease for Customers, Applications, all of that stuff. Some of it is just getting better at approvals. And we're not gonna change our credit box, but we're missing a lot of clients who are in that credit box because we make it too hard.

Speaker Change #120: And we just haven't put the same energy, although about a year ago we started to, into what we do in credit card. Some of that is...

Speaker Change #120: Service Technology, Ease for Customers, Application, all of that stuff. Some of it is just getting better at approvals. And we're not going to change our credit box, but we're missing a lot of clients who are in that credit box because we make it too hard for them.

William S. Demchak: Yeah, we're in simple terms, we're just under penetrated, relative to industry averages, nothing hugely aspirational other than just to have our fair share. Yeah, that makes sense. And then, just separately, I think you still have half of your original visa stake.

Speaker Change #120: We're in simple terms, we're just underpenetrated relative to industry averages, nothing hugely aspirational other than just to have our fair share.

Speaker Change #125: And then just separately, I think you still have half of your original dues of stake.

Unknown Speaker: And what's kind of the plan on that? And I assume that's, you know, in the 750 range, mark to market for visa, net of hedges and stuff like that. But just frame what's left in the timing of it.

Speaker Change #121: And what's kind of the plan on that? And I assume that's, you know, in the 750 range, you know, mark-to-market for Visa, net of hedge and stuff like that. But just frame what's left and the timing of it. Thanks.

Unknown Speaker: I'm sorry, I missed the front part of that question. Oh, just the remaining... What happens with the back half, so the 50% that we did not have the ability to monetize? Well, Visa controls that schedule, you know; some of it's reliant on the litigation resolution, and some of it's reliant on the schedule they've laid out, which is sort of a multi-year exchange.

Speaker Change #122: I'm sorry, I missed the front part of that question.

Speaker Change #122: [inaudible]

Speaker Change #127: which is sort of a multi-year exchange. So, we'll just continue to monitor it.

Speaker Change #126: Okay, thank you.

Unknown Speaker: So we'll just continue to monitor it. Okay, thank you. Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your, Hi Bill. Hi Rob. Hey Gerard.

Speaker Change #126: Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your questions.

Unknown Speaker: Unknown Speaker You guys have the good fortune of having insights into the commercial real estate business through Midland, your CMBS servicer. Can you give us some insights and color on what Midland is seeing in terms of their pipeline of increased, you know, special servicing, which of course, I know has higher revenue, but more importantly, maybe directionally shows us where credit is heading? Yeah, that's a good question, Gerard.

Gerard Sean Cassidy: Hi, Bill. Hi, Rob. Hey, Gerard.

Gerard Sean Cassidy: Um...

Gerard Sean Cassidy: You guys have the good fortune of having insights into the commercial real estate business through Midland, your CMBS servicer. Can you give us some insights and color on what Midland is seeing in terms of their pipeline of increased special servicing, which of course I know has higher revenue, but more importantly, maybe directionally, shows us where credit is heading?

Unknown Speaker: You know, ironically, their special servicing balances actually went down in the quarter, which is a little bit of a head scratcher. But we don't think that's necessarily indicative of a trend. We do expect it to continue to go up. But from the start, and I think you've asked this question before, it's been much, much slower in terms of those increases, those balances, than you would have expected. Yeah, and there, you know, I went through forecasts on sort of expectations for maturity bubbles and property types. We don't expect that balance.

Speaker Change #129: Yeah, that's a good question, Gerard.

Speaker Change #130: You know, ironically, their special servicing balances actually went down in the quarter, which is a little bit of a head-scratcher. We don't think that's necessarily indicative of a trend. We do expect it to continue to go up.

Speaker Change #131: But from the start, and I think you've asked this question before, it's been much, much slower in terms of those increases, those balances, than you would have expected. You know, I went through forecasts on sort of expectations on maturity bubbles and property types and

Speaker Change #131: We don't expect that balance.

Unknown Speaker: It's not going to grow at the pace that intuitively you might have thought of and that we thought a year ago. Yeah. Yeah. Because things are getting cured. So pretty quickly, there's, you know, for things that are really bad. There's still a lot of capital in the market. So they're turning it fast. Perhaps we would have. Are they seeing any change in the product?

Speaker Change #131: It's not gonna grow at the pace that intuitively you might have thought of. Yeah, and that we thought a year ago. Yeah, yeah, because things aren't getting cured, they're getting...

Speaker Change #132: Sold off pretty quickly, there's, you know, for things that are really bad, there's still a lot of capital in the market, so they're turning it faster than perhaps we would have thought.

Unknown Speaker: Is it still primarily commercial office space, or is it moving into any of the product areas? It's mostly office. Got it. Okay. Yeah, interesting. It's, It's, it's all of the above for all of us. [inaudible] You know, so there's still a lot of retailers, hotels that will show up there. Multifamily that is in the multifamily that went to Freddie Fannie and then, you know, increasingly its office in the bubble, down the road looks more like Gotham.

Speaker Change #133: Are they seeing any change in the product? Is it still primarily commercial office or is it moving into any of the product areas?

Speaker Change #134: It's mostly office.

Speaker Change #135: It's interesting. It's all of the above for all of the historical reasons. You know, so there's still a lot of retailers, hotels that will show up in there.

Speaker Change #135: you know multi-family that is in the multi-family that went to Freddie Fannie and then you know increasingly it's office and the bubble down the road looks more like office.

Unknown Speaker: Got it. And then just on your commercial real estate on slide 15, you give us obviously good detail. And you've always, you know, told us about this multi-tenant office is the issue. It looks like, obviously, with 52% criticized, how far are you along in analyzing or reviewing that portfolio? Are you completely through it? And now it's going on a second time, or is there any color there? I mean, we've analyzed it. I mean, we're completely through it every quarter.

Speaker Change #135: that.

Speaker Change #136: Got it. And then just on your commercial real estate in the slide 15, you give us obviously good detail. And you've always told us about this multi-tenant

Speaker Change #136: [inaudible]

Unknown Speaker: Yeah. I mean, a couple things. I don't know. We put this out there, but there are actually not that many loans. So we don't have thousands of small loans. These are typically larger loans.

Speaker Change #137: We've analyzed it.

Speaker Change #137: out there.

Speaker Change #138: There's actually not that many loans, so we don't have thousands of small loans, these are typically larger loans, and so we've gone asset by asset, and as anything gets close to being troubled, we look at three different appraisals, one of which is our own, self-generated

Unknown Speaker: And so we've gone asset by asset, and as anything gets close to being troubled, we look at three different appraisals, one of which is our own, self-generated. Negative assumptions that you might get from a commercial appraisal. We use higher vacancy rates, higher interest rates, longer time to lease up, higher cost to rehab, all that other stuff on our evaluation. So we go through this. We know all the properties. We keep looking at them. We know what's going to happen to them.

Speaker Change #138: using more extreme

Speaker Change #138: Thank you.

Unknown Speaker: We know the time Look, it's not a great outcome, but there's nothing in there that is going to surprise you. Very good. And just one last one on this, Bill. Geographically, are you guys finding certain parts of the country weaker than others?

Speaker Change #139: Well, it's not a great outcome, but there's nothing in there that...

Speaker Change #140: You know, I think he's going to surprise us.

Speaker Change #141: Very good. And just one last one on this, Bill. Geographically, are you guys finding certain parts of the country weaker than others? I know there's a lot of talk about the big urban markets, class B and C buildings. How about from your vantage point, what are you guys saying geographically?

Unknown Speaker: I know there's a lot of talk about the big urban markets, class B and C buildings. How about from your vantage point, what are you guys saying geographically? Unknown Speaker 0, You know, it's property by property, right? You could be an LLC, city, but be in the right place and do fine.

Unknown Attendee: It's not, you know, it's property, but I property, right? You could be in a lousy city, but be in the right place and do fine. So I just don't know that it matters. Got it. Okay.

Speaker Change #142: It's not...

Unknown Executive: you know, it's property by property, right? You could be in a lousy

Unknown Speaker: So I just don't know that it matters. Got it. Okay. And it relates to our portfolio for sure.

Unknown Executive: city, but be in the right place and do fine. So I just don't know that it matters. Got it, okay. And it relates to our portfolio for sure. Yeah, got it. Okay, thank you guys.

Unknown Attendee: I think I might start with the whole air for sure. Yeah. Got it. Okay.

Unknown Speaker: Yeah. Got it. Okay. Thank you guys. Thank you. There are no further questions at this time. I would now like to turn the floor back over to Bryan Gill.

Unknown Attendee: Thank you, guys. Thank you.

Unknown Attendee: There are no further questions at this time.

Unknown Executive: Thank you.

Bryan K. Gill: I would now like to turn the floor back over to Bryan Gill. Or close in comments. Well, thank you all for joining our call this morning. And if you have any phone calls, feel free to reach out to the IR team, and we've got to jump on a call with you. Thanks, everybody. Thank you.

Unknown Executive: 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 our call this morning, and if you have any follow-up calls, feel free to reach out to the IR team, and we'd be happy to jump on a call with you. Thanks, everybody. Thank you. Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Bryan K. Gill: Well, thank you all for joining our call this morning, and if you have any follow-up calls, feel free to reach out to the IR team, and we'd be happy to jump on a call with you. Thanks, everybody. Thank you.

Unknown Executive: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Speaker Change #143: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.