PNC Financial Services Group, Inc. (The)

Greetings, and welcome to the PNC Financial Services Group Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If you'd like to ask a question during this time, please press star, then one on your telephone keypad. If you'd like to withdraw your question, please press star two on your telephone keypad. If anyone should require operator assistance, please press star zero. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Brian Gill. Thank you, Brian. You may begin.

Well, good morning, and welcome to today's conference call for the PNC Financial Services Group. I'm Brian Gill, the Director of Investor Relations for PNC, and participating on this call are PNC Chairman and CEO Bill Demchik and Rob Raleigh, Executive Vice President and CFO. Today's presentation contains forward-looking information, cautionary statements about this information, as well as reconciliations of non-GAAP measures are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com, under investor relations. These statements speak only as of October 15th, 2025, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Thank you, Brian, and good morning, everyone. As you've seen, we had an excellent quarter, building on a great year so far. Our results for the third quarter reflect an impressive performance across the entire franchise. We reported net income of $1.8 billion, or $4.35 per share. We grew customers, loans, and deposits and continue to deepen relationships across our businesses and geographic footprint, with positive trends in our legacy and fast-growing expansion markets. Our NII growth trajectory continued as expected, coupled with very strong fee growth and well-controlled expenses. And as a result, we delivered record revenue and PPNR, as well as another quarter of positive operating leverage. Credit quality continues to remain strong with a net charge-off ratio of only 22 basis points. While there are obvious potential downside risks to the US economy, our customers remain on solid footing. From a consumer perspective, spending has been remarkably resilient across all segments, and corporate clients are expressing cautious optimism about their business outlook. Ultimately, this is driving a sound economy. Looking at our business lines, we continue to execute on our strategic priorities. In retail banking, consumer DDAs grew 2% year-over-year, including 6% growth in the Southwest, driven by strength across our branch and digital channels. Customer activity in the quarter remained robust, with record debit card transactions and credit card spend, as well as record levels of investment assets in P&C Wealth Management, our newly rebranded brokerage business. We continue to invest in our future growth by the end of the year, we will have opened more than 25 new branches and, importantly, we remain on track to complete our 200 plus branch builds by the end of 2029. In CNIB we saw record non-interest income driven by broad based performance across fee income categories and pipelines remain strong. Within our asset management business, we continue to see client growth and positive net flows from both legacy and expansion markets, with the expansion markets growing at a faster pace. Before I pass it over to Rob, I wanted to say how excited we are about the recent announcement to acquire First Bank. Kevin Klassen and his team have built a premier bank in the Colorado region with a focus on strong customer service and an enviable branch network. Upon closing, this deal will propel PNC to the number one market share position in retail deposits and branches in Denver. It will also more than triple our branch footprint in Colorado while adding additional presence in Arizona. And finally, as always, I'd like to thank our employees for everything they do for our company. With that, Rob will 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 basis. For the linked quarter, loans of $326 billion grew $3 billion, or 1%. Investment securities of $144 billion increased $3 billion, or 2%. And our cash balance at the Federal Reserve was $34 billion, an increase of $3 billion. Deposit balances were up $9 billion, or 2%, an average $432 billion. And borrowings increased $1 billion to $66 billion. AOCI as September 30th improved $605 million or 13% compared with the prior quarter and was negative $4.1 billion. Our tangible book value of $107.84 per common share increased 4% linked quarter and 11% compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 10.6% and an estimated CET1 ratio inclusive of AOCI of 9.7% at quarter end. We continue to be well positioned with capital flexibility. During the quarter, we returned $1 billion of capital to shareholders, which included $679 million in common dividends and $331 million of share repurchases. And we expect fourth quarter share repurchases to continue to be in the range of $300 and $400 million. Slide 5 shows our loans in more detail. During the third quarter, we delivered solid loan growth. Balances averaged $326 billion, an increase of $3 billion, or 1%, compared to the second quarter. Average commercial loans increased $3.4 billion, or 2%, driven by growth in the C&I portfolio, partially offset by a decline in commercial real estate loans of $1 billion. Growth in CNI was driven by strong new production, particularly in corporate banking and business credit, and during the third quarter, utilization remained slightly above 50%. Commercial real estate balances declined $1 billion, or 3%, as we continue to reduce certain exposures. Consumer loans were stable as growth in auto and credit card balances was offset by a decline in residential real estate loans. The total loan yield of 5.76% increased 6 basis points compared with the second quarter. Slide 6 details our investment securities and swap portfolios. During the third quarter, average investment securities increased approximately $3 billion, or 2%, driven by purchasing activity late in the previous quarter. Our securities yield was 3.36%, an increase of 10 basis points. And as of September 30th, our duration was 3.4 years. Regarding our swaps, active receive fixed rate swaps totaled $45 billion on September 30th with a receive rate of 3.64%. And forward starting swaps were $9 billion with a receive rate of 4.11%. Importantly, our securities portfolio is well positioned for a steepening yield curve that will support substantial NII growth in 2026. Slide 7 covers our deposit balances in more detail. Average deposits increased $9 billion, or 2%, during the quarter, driven by particularly strong growth in commercial interest-bearing deposits, which were up 7%. Non-interest-bearing balances of $93 billion were stable and were 21% of total deposits. Total commercial deposits grew approximately $9 billion, or 5%, late quarter. The growth was due in part to seasonality, but also reflective of both new and expanded client relationships. Our total rate paid on interest-bearing deposits increased eight basis points to 2.32% in the third quarter, reflecting the outsized growth in interest-bearing deposits and the resulting change in our deposit mix, along with slightly higher consumer rates paid. Going forward, we anticipate our rate paid on deposits will decline in the fourth quarter because of the full quarter impact of the September Fed rate cut and our expectation for additional cuts in October and December. Turning to slide 8, we highlight our income statement trends. Comparing the third quarter to the second quarter, total revenue was a record $5.9 billion and was up $254 million, or 4%. A non-interest expense of $3.5 billion increased $78 million, or 2%. which allowed us to deliver more than 200 basis points of positive operating leverage and record PPNR of $2.5 billion. Provision was $167 million and declined $87 million compared to the second quarter. Our effective tax rate was 20.3%, and third quarter net income was $1.8 billion, or $4.35 per diluted share. In the first nine months of the year compared to the same time last year, We've demonstrated strong momentum across our franchise. Total revenue increased $1 billion, or 7%, driven by record net interest income and record fee income. Non-interest expense increased $213 million, or 2%, reflecting increased business activity as well as continued investments in technology and branches. And net income grew $638 million, resulting in diluted EPS growth of 17%. Turning to slide nine, we detail our revenue trends. Third quarter revenue increased $254 million, or 4%, compared to the prior quarter. Net interest income of $3.6 billion increased $93 million, or 3%. The growth reflected the continued benefit of fixed rate asset repricing, loan growth, and one additional day in the quarter. And our net interest margin was 2.79%, a decline of one basis point, reflecting the outside's commercial deposit growth I previously mentioned. Importantly, our expectation is for NIM to continue to grow going forward, and we still expect to exceed 3% during 2026. Non-interest income of $2.3 billion increased $161 million, or 8%. Inside of that, fee income increased $175 million, or 9% linked quarter, reflecting broad-based growth across categories. Looking at the details, Asset management and brokerage income increased $13 million, or 3%, driven by higher equity markets and included positive net flows. Capital markets and advisory revenue increased $111 million, or 35%, driven by an increase in M&A advisory activity, as well as higher underwriting and loan syndication revenue. Card and cash management revenue was stable as seasonally higher credit and debit card activity was offset by lower merchant services. Lending and deposit services revenue increased $18 million, or 6%, due to increased activity and client growth. Mortgage revenue increased $33 million, or 26%, reflecting elevated MSR hedging activity and higher residential mortgage production. Another non-interest income of $198 million included negative Visa derivative fair value adjustments of $35 million, primarily related to Visa's September announcement of a litigation escrow funding. Notably, we continue to see strong momentum across our lines of business and throughout our markets. In year-to-date, non-interest income of $6.3 billion grew $337 million, or 6%, compared to the same period last year. Turning to slide 10, our third quarter expenses were up $78 million, or 2% linked quarter. The growth was largely in personnel costs, which increased $81 million, or 4%, and included higher variable compensation related to increased business activity. The equipment expense increased $22 million, or 6%, reflecting higher depreciation related to investments in technology and branches. Importantly, all other categories declined or remained stable. Year-to-date non-interest expense increased by $213 million, or 2%. And as we previously stated, we have a goal to reduce costs by $350 million in 2025 through our continuous improvement program, and we're on track to achieve that goal. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on slide 11. Overall credit quality remains strong. Non-performing loans of $2.1 billion were stable linked quarter. Total delinquencies of $1.2 billion declined $70 million, or 5%, compared with June 30th, reflecting lower commercial and consumer delinquency. Net loan charge-offs were $179 million, down $19 million, and represent a net charge-off ratio of 22 basis points. Provision was $167 million, resulting in a slight release of loan reserves, primarily due to an improved outlook for our CRE portfolio, reflecting both lower loss rates and continued runoff. At the end of the third quarter, our allowance for credit losses totaled $5.3 billion, or 1.61% of total loans. In summary, PNC reported a solid third quarter. Regarding our view of the overall economy, we're expecting real GDP growth to be below 2% in 2025 and unemployment to peak above 4.5% in mid-2026. We expect the Fed to cut rates three consecutive times, with a 25 basis point decrease at the October, December, and January meetings. Looking at the fourth quarter of 2025 compared to the third quarter of 2025, we expect average loans to be stable to up 1%, net interest income to be up approximately 1.5%, fee income to be down approximately 3% due to elevated third quarter capital markets and MSR levels. Other non-interest income to be in the range of $150 to $200 million. Taking the component pieces of revenue together, we expect total revenue to be stable to down 1%. We expect non-interest expense to be up between 1% and 2%. And we expect fourth quarter net charge-offs to be in the range of $200 to $225 million. And with that, Bill and I are ready to take your questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one to be placed into question queue. Our first question today is coming from Scott Heifers from Piper Sandler. Your line is now live. Scott Heifers, Piper Sandler, Your line is now live.

Scott Heifers, Piper Sandler, Good morning, everybody. Thank you for taking the question. Rob, I was hoping you could please expand upon your thoughts on the margin performance and outlook. I guess, in particular, hoping you could especially touch on that idea of the third quarter commercial deposit growth, sort of what it might have done to the third quarter margin, and then why what occurred with the third quarter margin, meaning just slight compression isn't necessarily representative of the path you'd expect going forward. I think you suggested we could still get to like a 3% number at some point in 2026. So maybe sort of the What happened with that deposit growth? What effect did it have? And then what are we looking for going forward?

Yeah, sure, Scott. Good morning. So let's start with the last part there first. We do, as I mentioned in the comments, we do still expect our NIM to continue to expand and hit the 3% and above sometime during 2026. So no change there in terms of the trajectory. The difference in the quarter was the outsized commercial interest-bearing deposit growth. So we grew $9 billion, which was easily the most that we've ever grown commercial interest-bearing deposits in any quarter, particularly in 2025. And even though we kept our rate paid on commercial interest-bearing deposits flat, actually down a basis point in the quarter, it affected our NIM because of the mixed change. commercial interest-bearing deposits, as you know, are priced higher than consumer. So when you put that into the weighted average, that costs us four basis points, four or five basis points on our dam that would have otherwise been there had we not grown those deposits. And I think it's a good question to make sure you understand what's going on there. But it's also... You know, a good point, a good for us to point out that NIM is an outcome, not something that we manage to. So this is a good example. Lots of our commercial clients want to put deposits with us. We can do that in an NII accretive way. It costs us a couple of basis points for NIM, and that's a good thing. So going forward, continue to expect NIM to expand. It's just that outsized growth sort of on an apples-to-apples basis reset at the weighted average.

Yeah. Okay, perfect. Thank you for that, Rob. And then I was hoping you could just touch on expenses and just a little more thought on why they go up in the fourth quarter. I guess just given the revenue backdrop, from my perspective, you might have thought maybe a little more lift in the third quarter. I'm just not sure how all the accruals work. So it kind of feels like a full year would be okay, but curious to hear any of your thoughts in there.

Yeah, I think the full year is the way to look at it because, you know, there are some seasonal aspects to some of our expenses. They don't fall uniformly in each quarter. The difference is, you know, back in July when we gave full year guidance, we expected expenses to be up for the full year 1%. We're pointing now to 1.5%, but you've got to go back to July. The non-interest income expectation was up 4.5%, and we're pushing 6%. So that delta in terms of the outperformance on the fees drove our expenses a little bit higher, but those, as you know, are good expenses.

Yeah. Perfect. Okay. Wonderful. Thank you very much. Yeah. Thanks, Scott. Thank you.

Next question is coming in from Betsy Grasek from Morgan Stanley. Your line is now live.

Hi. Good morning. Good morning. Bill, I wanted to understand a little bit about how you're thinking about scale in this environment. I know you've spoken about that recently, but we've had some deals since then. And what should we be anticipating as we move forward here in this timeframe where we have opportunities to maybe move the needle more than we have in the past?

I think you should look at our organic growth success. You know, we're... particularly in the new markets where, you know, we've laid out a path, importantly, to be able to grow our retail franchise at the pace we grow our CNI franchise. And that's the whole long term. You know, when we talk about scale, when you have two giants, you know, gathering up retail share, unless we can keep pace, share in CNI doesn't necessarily do us any good. We're on track to do that. You know, we did the first bank acquisition because it was kind of a really focused retail gather dominance in a particular state or a couple markets opportunity to accelerate what we were doing. But you shouldn't expect that to be the norm. You shouldn't expect us to kind of chase a deal frenzy. You know, we'll look at things should they arise, but you know, we'll be selective as we've always been.

Okay. And then, Rob, on the C&I loan growth, very impressive. Just want to understand how much of that is NDFI versus non, and then separately on the CRE commercial real estate runoff, how much longer should we anticipate that's going to continue? Because it's obviously taking away from some of the balances here. And I'm wondering when we're going to get to CRE actually growing.

um thanks yeah yeah yeah no that's uh that's a good question betsy um um let's let's add to the the second one first in terms of the the commercial real estate balances we would we would expect that to inflect uh at the beginning of next year so we're near the end um uh in terms of uh the sort of the rundown of those balances we are doing new deals but as we work through obviously the issues in office etc um we'd expect that to turn positive uh going into into 26. The first part of the question was the NDFI. No growth there. All the growth that we had in CNI was outside of that. I know there's a lot of focus on NDFI. We still feel, this isn't part of your question, but it's implied, feel very good about the credit quality there, the composition. As you know, the vast majority of ours is in asset securitization, bankruptcy, remote, investment-grade clients. In the extent that we're involved with private equity, it's in capital commitment lines that have very low loss rates. So NDFI is not part of our story this quarter.

Okay. Thank you.

Sure.

Thank you. Next question is coming from John Pancari from Evercore ISI. Your line is now live.

Morning.

Morning, John.

Just back to the margin and NII, I just want to see if you can, you know, I appreciate the color you gave around the deposit dynamics and what impacted the blended deposit costs for the quarter. And maybe if you could talk about the left side of the balance sheet in terms of your updated thoughts around the fixed asset repricing opportunity. Has that changed at all given the moves along the curve in the 10-year? And then also we've had a couple banks flag some tightening loan spreads on the commercial front. I want to see if you're also seeing that impact and how that could impact your loan yields as you look out.

Yeah, sure. Sure, John. I want to broaden that out a little bit for NII. So NII for the full year, we're pointing to up 6.5%. As we go into 26, as we said previously, we expect that trajectory to continue and actually increase. PNC on a standalone basis, so not including First Bank. We'll have these numbers for you in January, but PNC bank on a standalone basis in 26. Consensus for NII is growth of about a billion dollars, and we see that, and we agree with that. We'll have more for you in an update, obviously, in January, but the point is that our NII trajectory is in place, the fixed rate asset repricing is still there, going into 26 with momentum.

Part of the shortfall against previous guys just in the third quarter was simply this shift, sorry, into the fourth quarter, is this shift on our expectation of Fed cuts. So what's hitting us is if they cut late in the fourth quarter, our deposits don't necessarily catch up in the first. So what happens is we'll make a little less in the fourth quarter, make a little more in the first quarter. But nothing has changed whatsoever in our NII outlook. The only thing that has changed is like a month shifting on when we had cuts, which affects where it lands.

And then with the, you know, the end of the calendar there in December, sort of we have the negative effect of those cuts occurring in December and the positive happening after December. So that explains why the delta of our expectations in NII for Q4 were different than July. Yeah.

Got it. Okay. Now, thank you. That's very helpful. And thanks for the color on the 2026 NII. That was going to be my part to the question. Therefore, my follow-up would be around the loan growth. outlook what are you seeing right now in terms of broader commercial loan demand are you are you you know we've we've had some banks flag still some lackluster commercial demand and not yet seeing capex pull through um what are you seeing on that front are you are you seeing some strengthening there or is it still um you know somewhat a wait and see type of approach um

At the margin, I guess a little strengthening, but what we've seen activity in is M&A financing syndications. My utilization, I was thinking, Rob, really hasn't changed.

Yeah, it hasn't gone down because we had the pickup in the second quarter. It was sustained. The first and the second, and then we held it, yeah.

We continue to see some solid growth, and I'm finding commitments to it.

So you kind of back all the moving parts out in the sense that, okay, utilization didn't change. We actually grew balances absent real estate at a pretty healthy clip, and our pipelines are strong. So I ought to kind of just rephrase my question that things, I guess, feel good in loan growth outside of this, you know, waiting for the inflection in real estate.

And as Brian just mentioned, I don't know if you'd heard that our DHE continues to grow. So our commitments continue to grow. They're unfunded in some part, but when clients put those in place, there's the expectation that they're going to use them.

Got it. Okay. Thanks so much, Rob. Appreciate it. Thanks, Bill.

Thank you. Next question today is coming from Ibrahim Poonawalla from Bank of America. Your line is now live.

Good morning. I guess maybe Rob or Bill would love to get your perspective on how you're thinking about The right level of capital for PNC, if I look at the adjusted for EOCI at 9.7, one of the larger banks brought down kind of where they're operating the bank to 10, 10.5 yesterday. So as a result, not that that should dictate where you run the bank, but I would love to hear what you think. Is 9.5% to 10% is the right place? Is it 9%? Just how are you thinking about it? And is there still Moody's, of course, upgraded some of your ratings or the Outlook recently? So is there a push and pull with the rating agencies around this topic? Thanks.

Why don't you go ahead and start, Rob?

Oh, sure. Well, so, yeah, Ibrahim, good question. You know, right now, you know, our CET1, is 10.6% on AOCI adjusted just below 10%. So we're in a good position relative to our capital. You know, we had always said that our operating guideline with these Basel 3N rules and capital rules still fluid that we would operate between 10 and 10.5. We're at the high end of that. But, you know, given some recent developments, the Moody's that you had cited that was previously a binding constraint, You know, it's possible that we would work to the lower end of those ranges and possibly even lower, but, you know, we'll assess all that with our board, you know, as we go into the new year.

Yeah, we're going to have to do some work because some of the thought process on the rating agencies has actually changed. And then, you know, we'll see what happens with risk-weighted assets and anything that comes out in Basel, you know, tree proposals. But It's in flux and we are at the high end of whatever that flux might be.

Yeah, that's right.

Resulted, yeah.

Got it. And just on the other side of it, I'm not sure Rob if you laid out what your expectations on GDP growth going into next year were, but between loan demand picking up or credit worsening, what do you see as the more likely outcome? Do we expect just between the tax bill and rate cuts to drive loan demand higher, or are you seeing more and increasing businesses come under pressure of a somewhat stagnant economy and that could lead to more credit issues?

Yeah, I think Bill may want to jump in here too. I mean, I think as Bill said in his opening comments, despite some of the obvious things going on around the world where the economy looks pretty good. And as we go into 26, we see some strength around the loan growth possibilities that we just talked about. And credit quality is very good. Criticized assets are down. Non-performers are flat. Delinquencies are down. Charge-offs are down. Our expectation for charge-offs are down. So, you know, feel pretty good going into the new year.

The survey that we just did in partnership with Bloomberg with corporate CFOs surprised us to the upside. Majority were bullish, not just on their own. Actually, vast majority were bullish, not just on their own company, but on the economy, which kind of. surprised me. A big part of that theme was, you know, the ability and the work sets they've done to kind of work through tariffs, whatever they might be, and sharpen up their own companies, both in terms of resiliency and just cost efficiencies. You know, and the consumer remains, deposits are growing. We've got a whole bunch of things that could land on us, but none of them are there and none of them are served.

And all the leading indicators of the credits are positive.

Yeah. Thank you. Thank you. Next question is coming from Chris McGrady from KBW. Your line is now live.

Oh, great. Good morning. Rob, maybe start on slide seven, the $9 billion of commercial interest bearing. I'm interested in what, in your opinion, drove the surge this quarter and whether that's You bring in more on the balance sheet if there's a change of behavior. What's the, I guess, the outlook as well?

Yeah, we just, it's a combination of things as these things usually are. It's more deposits coming from existing and new corporate clients. In some instances, we did see what were previously our customers had deposits on sweep accounts going into money markets coming on balance sheet because the rates coming down on the money market made it almost a tie or less in terms of putting it with us and all else being equal. They have a relationship with us. They like it with us.

Okay. And then my follow-up would be just Year over year, most of the growth has been in commercial. What are your expectations heading into next year with lower rates in terms of mix of deposit growth for the company?

So we expect further deposit growth going into next year. And of course, in January, we'll give you our full 26 outlook. Don't expect big mixed changes like we saw here in the third quarter. That could always happen, but that's unusual. I would expect the mix to be fairly stable, you know, going into the end of the year and into next year. We could see a little increase in non-interest-bearing deposits in the fourth quarter. We see that sometimes, but that's sort of on the margin. Okay, thank you.

Thank you. Next question is coming in from Erica Najarian from UBS. Your line is now live.

Hi, good morning. Just worth repeating, Rob, given sort of the stock reaction, I just wanted to make sure that investors are taking away the right thing from your response to Pankari's question. So you're expecting 6.5% net interest income growth in 2025. you know, given the momentum in, you know, what Bill mentioned, retail deposits, remixing, also fixed rate asset repricing, you expect 26 NII growth to be better than that 6.5% excluding first bank?

Comfortably, yes.

Comfortably. Okay, perfect.

I'll add the word comfortably. So that I'm

Yeah, there seems to be a lot of, I mean, let's just hit the issue. There seems to be a lot of confusion because, you know, NIM went down totally explained by deposits and then NII felt a little light. as we go into our guide because of this issue of what rate cuts are. There's absolutely nothing that has changed on our trajectory of forward NII growth. We will be comfortably above a billion on top of this year for 26's number.

Right. It's just a timing difference, right? I mean, later cuts and, you know, SOFR goes down and then, yeah, it takes time to reprice deposits.

Okay. Well, we hit you with two things, right? We confused you with deposit growth. So just isolate that for a second. We're getting corporate, yeah, and NIM. So we get corporate deposits and that SOFR minus something and we put them on deposit at the Fed at SOFR plus something. We have no supplemental leveraged you know, issues in our company, so it's just money in the pocket. It hurts our NIM when we do that, but we do that all day long. It's riskless money in our pocket. The NII on a go, you know, the totality of our NII repricing that occurs because of the way we position the balance sheet has not changed at all. All that's changed is one month on our expectations of Fed cuts.

Got it.

Which we come out ahead, actually, just a little bit, but just to complete the story.

Got it. And just the second question, just to switch gears, and this is for Bill and Rob, chime in as well. You know, I thought it was important, given all the recent headlines and also investor concerns about NDFI, you know, to ask, you know, Jamie at the JP Morgan call, even what kind of questions to ask, you know, the banks in order for investors to assess the risks. I'll ask you, you know, what questions should investors be asking, you know, in order to, you know, be comfortable with the NDFI risk on bank balance sheets? You know, we're hearing that frequency and severity should be much lower than, you know, direct lending and, The loss history has been pretty pristine, like Rob reiterated. So what even are those questions that we should ask to really make sure that we're investing in the right underwriters as we think about the potential cycle turn?

Yeah, so, I mean, if you want to go down that hole, and it is worth discussing, the category is the wrong category, because there's a whole bunch of things that they bucketed into, you know, non-bank financials, one of which, which is by far our largest holdings, are securitizations to corporates, where we basically securitize bankruptcy remote receivables for investment-grade corporates. That is very low risk of default and extremely low loss given default. Inside of securitization, we just saw an example of something in the auto space that went bad where it looks like the underlying collateral was highly correlated with the actual corporate itself, right? So you had auto loans with an auto loan maker and you might have, we'll have to see what comes out of it, some not very careful filing of UCC filings and title tracking. I think that's a wild anomaly, certainly has nothing to do with our book. The other things you look at, we have capital commitment lines that are effectively diversified receivables from large pension funds and investors that there's never been a loss on. And I think that's a pretty safe business. You know, other people will have other things in that bucket, but that's the vast majority of what we have in the bucket.

Got it. Thank you.

Thank you. Next question is coming from Gerard Cassidy from RBC Capital Markets. Your line is now live.

Hi, Bill. Hi, Rob. Bill, in your opening comments, you talked about, if I heard it correctly, you had record debit transactions this quarter, as well as I think you said credit card activity as well. Can you just give us some color behind that and what you think how that might continue to flow into the first part of next year?

Yeah. You know, look, the credit and debit spend interestingly is across all buckets more credit in the lower income buckets I don't know that that can continue eventually they're going to hit limitations you know most of the consumer spend that you know has grown year on year is coming I think from the wealth effect and the higher end of our you know wealthy clients right who see stock market value and everything else and it continues to climb that's one of the reasons I'm you know, I remain pretty comfortable with the economy as long as there's consumer spend and we don't have a big crack in employment that, you know, it's weakening, but thus far hasn't really fallen. I think the economy's fine.

I'd add to that, George. I'd add just for PNC that, you know, We continue to add, particularly in our newer markets, debit card and credit card users. That's a big part of why we're doing what we're doing there as well.

Even by account cohort, we're seeing more total volume, but even by account cohort, the consumer still continues to spend. We grew card balances for the first time in a while, largely on new customers and not not pushing on credit to do that. Just kind of our new card launches.

New offers.

Yeah. Got it.

And then as a follow-up, There's been real optimism about the tailwind that we're all expecting with the regulatory changes that are underway. There was a notice of proposed rulemaking today on MRAs, matters that require attention and safety and soundness. So hopefully they're not going to be using them for ticky tacky stuff and helps everybody, yourself and all the others as we go forward. Bill or Rob, can you give us some color in what you're hearing in terms of the encouragement coming out of Washington and how the regulators are working with the industry rather than against the industry? Then if you could also tie in, you made a comment a moment ago about Moody's and the reading agencies. Do you think they're going to be the capital binding constraint going forward and not the actual bank regulators when it comes to CET1 ratios?

So let's do that. go to Moody's here in a second, that there is a strong push out of, let's say, Washington broadly to simplify the regulatory process and focus it on things that are material risks. Inside of that, you saw the MRA proposal that I think if it does nothing else, it will get rid of all the crazy ancillary work we do on minor MRAs. You know, if you're not in a bank, you don't really understand this, but if we get an MRA, and by the way, we get a lot of them for kind of silly things. You get the MRA, you negotiate it with the regulators, that's a team of people, then you write your response to how you're going to fix the MRA, and then you assign a people who are responsible for the MRA, and then you do set up committees, and then you spend a thousand hours like fixing some, you know, in the MRA process where you could actually fix the issue that they were concerned about in 10 hours. So if it actually comes out the way they wrote their proposal, it's a massive work set decline inside of our company. Not because we're not going to fix issues, but rather that we're going to just fix issues as opposed to talk about them for months. On capital issues, It'll be kind of interesting. Moody's had been the binding constraint. But remember, Moody's triggers their ratings off of risk-weighted assets also. So when Basel III Endgame comes out, depending on how they calculate risk-weighted assets, even if you're supposed to hold, in our example, we're sitting at 10 to 10.5%. It could well be that our capital ratio spikes because risk-weighted assets go down because operating risk and or investment credit is treated differently.

That's our new definition.

So I think it's way too early to kind of assume who or what is the binding constraint until we actually see what comes out of Basel III endgame because the expectation is in Basel III we're going to drop risk-weighted assets pretty quickly. Potentially, substantially.

And based on your guys' experience working with both the regulators and the rating agencies, is there a preference on which one you'd rather have be the binding constraint? Not to put you on the spot, but if you don't want to answer it, that's fine too.

I think... Look, at the end of the day, we're the binding constraint. You know, we want to make sure the company is well capitalized for all scenarios. I don't know that I necessarily, you know, let's assume for a second that everybody completely lost their mind and said risk-weighted assets fell in half. I would say, no, that doesn't mean I'm going to, you know, drop our capital ratio materially below where it is today. I just I think all the external people who look at our capital do so with rough assumptions. Whereas, you know, we look at it with great detail and run the company for the, you know, to have, you know, Jamie's words of fortress balance sheet independent of what other people tell us.

Sounds good. I appreciate the color. Thank you.

Thank you. As a reminder, if you'd like to be placed in the question queue, please press star 1 on your telephone keypad. Our next question is coming from Ken Usdin from Autonomous Research. Your line is now live.

Great. Thanks a lot. Hey, Rob, I just wanted to ask you if you could talk a little bit more. You mentioned that deposit costs should be down in the fourth. And just, you know, furthering this discussion about the commercial growth that you saw this quarter, knowing that's just simply a higher rate product. Can you kind of just tell us how then you expect the wholesale track to compare with the retail track as you get down to this next phase of the rate cycle? Yeah, yeah.

So, yeah, so we do expect that our rate pay will come down in the fourth quarter. In fact, it has already come down. You know, and then it's just a question of the betas in terms of the categories. CNI, as you know, can be moved pretty fast. I can get to 100% beta, maybe not right out of the box, but eventually. High net worth, somewhat similar. Retails where it's a little bit slower, just because the rate paid there is still pretty low. And this is nothing new. But just in terms of that back book, pricing that down, there's not as much of an ability to do that because they're already down. But again, that's been the case for a while.

Right. Okay. And then just on the commercial growth, it's interesting that you get this new business, you say that it's a partially new customer. So just wondering, like, you keep it at the Fed for now. Do you presume this also leads to incremental loan growth? Do you eventually get the confidence that it's sticky deposit growth and you put in securities and kind of lock in some more? Just, you know, coming back to that discussion of it's good to get the extra deposit growth. Do you assume it's sticky and kind of what's the best way to maximize on higher cost deposits? opportunities like what's happening in the wholesale side of the border. Thanks.

I would hope that the industry has learned by now that you shouldn't put duration on corporate deposits, particularly when it's excess cash. Now, we do it on transaction accounts, DDAs that corporates fund for our TM products, but when they are just floating extra cash, we treat it like it's a duration of a day.

But wouldn't mind using some of it for some longer.

Well, I guess that's still the timing debate, right? You get some great extra deposit growth, but we're still waiting for the great step up on the loan growth side. It was really good this quarter, but that's part of this just like slight timing disconnect with the rates paid versus just sitting in cash. So I guess people are just still looking to understand like what kind of inflection do you expect on the loan side?

I mean, Simplify the question. We are very liquid and can support loan growth. You know, activity, utilization popped, line, total commitments have popped. Activity this quarter on the back of M&A was higher. We saw capital markets and imbalances. And again, if you just back out, you know, the continued decline in real estate that will inflect. Like, if we didn't have that, our loan growth year on year would have, I don't know, would have been a big number. Yes. You know, absenteeism. absent real estate, you know, that's likely to continue.

And inflect in the beginning of the 26th of the year earlier. And can too. I mean, it's accretive. So we're sitting here. Deposit of the Fed doesn't matter. We're making money.

Yeah. Absolutely. Okay. Great. Thanks, guys.

Thank you. Next question is coming from Mike Mayo from Wells Fargo. Your line is now live.

Hey, Bill, can you expand more on the potential benefits of less regulation, the cost of MRAs, you know, like how much could this potentially save in expenses when you throw it all in together, like the examination, the MRAs, the more of the ticky tacky process oriented stuff, and they're moving more toward just plain old financial strength, like in the old days, like how much do you spend? How many people are dedicated to some of those efforts that, might go away at some point?

Yeah, it's a good question, Mike. And I don't know that, I mean, it's just outside. I don't know that we've tried to quantify it. But I mean, it's, you know, an FTE equivalence, it's hundreds and hundreds of people that are just, you know, tied up the, what's the best number I can get? BPI put out something. Like a year ago, you can go back and look at it where we talked about the number of hours, man hours, the banks have increased on MRA compliance since like 2020 or something. And it was a clean double, if not more. What they're talking about is a material change in MRA. We'll have to work our way through what that actually means. Importantly, it doesn't mean we're going to back off on what we actually do to monitor risk, including compliance and some of the things we used to get MRAs for that we won't get anymore. It just means that we won't have all the process around it. And the process is what kills us. It's not actually the work to fix things. It's the documentation and the databases and the meetings and the committees and the secretaries of the committees and the follow-up. It's just, it's, I mean, you can't even imagine how bad it is unless you actually sit in a bank. And if they actually, just to clean it up, it's something.

No, we all, that's our job is to try to quantify these things. But just as far as how much of your time it takes, if you go back, say 20 years ago, how much time you spent on these things. And then after the financial crisis, how much time you spent. And then two years ago, I think peak regulation, how much time you spent and now kind of where you are today. Like how would you spot something like that?

20 years ago is actually a bad time period for PNC. You're one of the few is around back then. We spent a lot of time on regulatory stuff, but that was us, not the system. It's just increased through the years. Our board, the best example is just the amount of time our board spends reviewing non-strategic, ticky-tacky, MRA-related regulatory stuff. It's gone from something we never really talked about in the ordinary course to, you know, half of our time spent with our board.

So half the time that you spend with your board is on regulatory matters?

I'm just thinking through, you know, we have a, we have, you know, uh, compliance committees. So, so assume risk committee, compliance committees, tech committees, they all own, you know, MRAs that we need to report out on. Um, It's a lot. That announcement was a massive announcement. We'll see how it plays out. The industry has to do a lot of work to figure out what that actually means. We're kind of numb from the existing process, so we'll have to see. But it's a lot of FTEs. All right.

We'll stay tuned. Thank you.

Thank you. Next question is coming from Matt O'Connor from Deutsche Bank. Your line is now live.

Hi, Bill. I want to follow up on your comment about not chasing M&A. I guess if that's the case and you've got all this capital and operating leverage and desire to get bigger, thoughts on just leaning in from the organic point of view, whether it's an additional ramp up in branches, maybe leveraging the deal?

uh bankers or just how are you thinking about organic opportunities to maybe accelerate some of the growth um well you know we've been going at that pretty hard and you'll see you know in our in our plans that you know the capital that we put behind branch builds um you know we we talked about hey we completed 25 this year but that 200 like we have sites out there and we have construction going on and we're going to continue this into the foreseeable future. So this wasn't kind of a one-time announcement and then we're done. We'll see us continue to roll this investment into important markets to get over that 7% kind of branch here. CNI, we can grow at pace. You know, we add bankers to our newer markets as we kind of fill client plates with the bankers we have. And the growth opportunity there, you know, continues for years. And that's about people and brand and kind of persistence in calling with good ideas. So that one I don't worry about. It's just this retail share where – You know, you have to get, just see in my view, if you want to be in the retail banking business, until you get sufficient share to be able to keep your retail clients who move around the country, like you got to drop the attrition rate. I think you're at a disadvantage to these giant banks, and I think they continue to gobble it up. And so we have a path to get there organically. You know, everybody's all excited about M&A, but there actually aren't many visible sellers who have any sort of decent retail share. Part of the reason a lot of these guys are selling is because they don't have an answer to this question. You know, one of the deals we've recently seen is actually, you know, they were in the extreme position of simply having corporate deposits in a struggling retail franchise. So, you know, think about how I might look at that deal. That actually exacerbates our problem. It doesn't help it at all. We need real, honest retail share, which is what got us so excited about First Bank. You know, that's what they do. Clean deposits, clean branches, great customer service, low-cost deposits. You know, when we talk about scale, that's the thing we're always talking about. Everything else we can grow organically with no worries.

Yeah, just to add to that, Matt, I mean, the organic growth opportunity that we have ahead of us has got us excited because the organic growth contributions to everything in our company and every business line are substantial. Yeah. We're seeing higher growth rates in corporate than the expansion markets, higher growth rates in asset management, higher growth rates in retail.

One of the things, we're going to have Alex at that.

Have we not said it?

We're going to detail in one of the upcoming conferences the success we've had over the last, You know, we've been at it for a handful of years, but the success, progress, and momentum inside of our retail franchise, which gives us a lot of comfort that while it might take longer, we're going to succeed at this.

And it is happening.

Yeah. You know, DDA growth, customer sat, number of products owned, a lot of good positive signs that give us comfort that we can do this organically.

That's helpful. And then just specifically on the pace of the branch openings, I mean, do you step back and say, you know, we thought in the next M&A cycle there might be something bigger we could do at a reasonable price. Now that's probably not going to be the case, so let's kind of double or triple down the efforts. I mean, I know there's only so much you can build at a time, but you're a big company, lots of reach. I would think you could do multiples of kind of what you've put out there if you wanted.

Yeah, it's, we're actually, you know, part of it is we're building on what we've historically done. I think we're doing like twice or three times the pace of what we did a year before. And so we're having to scale our internal group that actually does that. Site selection, you know, takes time. And then the actual builds, you know, if we have, 150 builds going on right now. I got a construction manager, each one of those sites. So we got to scale all of that. But you're right, is we kind of build this skill set, which we haven't exercised for a bunch of years. We could accelerate it if we wanted to. And the other thing, you know, people are like, why are you building branches? We still have branch, probably more branches in the country than we necessarily need in the long term. PNC doesn't necessarily have the branches in the markets. We need saturation. And importantly, a lot of the banks that you might say, hey, why don't you buy this or why don't you buy that? Their branches are in a state that we might as well just build them from scratch anyway. They're in the wrong place. They don't really have real retail customer relationships. A lot of it's brokered and it's real estate. So, That's not going to be the answer to how we fill this in.

Okay. All those details are helpful. Thank you.

Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Brian for any further or closing comments.

Well, thank you, Kevin, and thank you all for joining our call today. If you have any follow-up questions, please feel free to reach out to the IR team.

Thanks. Thanks, everybody. Thank you. Thank you. That does conclude today's teleconference webcast. We disconnect your line at this time and have a wonderful day. We thank you for your participation today.