PNC - Earnings call transcript Q1 2019 | The PNC Financial Services Group, Inc.

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Operator

Good morning. My name is Silvana, and I will be your conference operator today. At this time, I would like to welcome everyone to the PNC Financial Services Group Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions]. [Operator

please this the recorded. of call Mr. Gill. reminder, like would Investor is Bryan turn to over Sir, call a I being now Relations, As ahead. go to Director

Bryan Gill

reconciliations for about PNC’s CFO. and Reilly, you, statements materials, obligation Executive April of Investor under These our and information. information, SEC Participating Welcome XXXX, XX, conference update other non-GAAP Services earnings morning, Well, Today’s and measures well on to forward-looking as the call are included CEO, undertakes Cautionary thank of Financial are them. pnc.com good materials. PNC as filings this Relations. and in Rob PNC today’s These investor and presentation President materials release available as website to contains Vice our everyone. this today’s President are statements all call Chairman, well on speak no Demchak; as corporate Group. Bill as and only

to over the like Now, call Demchak. to I’d turn Bill

Bill Demchak

Thanks, Bryan, morning, and everybody. good

you’ve the would second brief net $X.XX numbers share here. through a this the common of thought is I diluted per $X.X few billion, for or all As PNC quarter. to income run morning, in going highlight you Rob a but I first reported items seen

had billion multifamily principally growth small approximately headline than was estate our As growth PNC well. balances really by saw we the loans you C&IB commercial fourth I and numbers a the results. is warehouse some driven know, as $X.X quarter strong commercial in two context the year a of the and days real good impacted consumer greater first think to our compared quarter in decrease this Linked seasonality negatively very as typically balances of the average fewer by as lines. well in as delivered with we growth quarter actually as Within

cash in quarter continued quarter-over-quarter. exclude estate at that, our book first real first X% growth saw the in where came expected. seasonality, growth over for areas quarters. in several came also lending but in fee you income total we We we secured more just businesses growth saw in flow traditional If about normal time Reflecting lending the C&IB our

flat and remained expenses quality strong. were overall our credit Importantly,

provision Our some we going commercial largely to Rob loss certain came growth that in loan But reserves loan driven broad as for and than we it anticipated. our higher base discuss, strong credits, is basis. on by a saw nothing was

have signals the to for on US solid trade of will will hard Regardless and believe ahead, Brexit feel the here, strong strategies fee-based there forward economic in that indicators, of As from US continue focus inherent said provide weigh success. significant path still we little pressure economy. expansion, organic differentiated expense in the for management we the that from clear is our that there the clients from we good seen look weakness some is that, sheet, economy, global economy. we mix a on about Having and Notwithstanding businesses, very indicate a very the of foundation mix from weakness economy. would having fears balance

to want things particularly of quarter. mention did I Lastly, of proud a that this I am couple

have early the week childhood to the And excited celebrate just education. since period inception focused XXth we're an were that that ago XXXX. learned highest few excited to we PNC has rating second, in exam philanthropic Grow just of we Up PNC program possible every the that Reinvestment of our we last anniversary of Great, the that these earned first rating a are -- very OCC, received signature Act one for very proud CRA The is weeks Community from Outstanding and on

Reflecting communities initiative. Investing for and which the education economic support Great extended we of success proven a we’re celebration, operate. $XXX this model, in that. the our early communities has success main our our is of street commitment high to generate Up proud part Grow returns very in to now childhood which we lot million As depends a on to

I’m will quarter it for questions. and hard our Rob? and at very our I our drive the results to employees closer then overall, Rob that, with want So quarter thank to for with I business pleased first thrive. look communities work continued take will to your forward our and help a we both their turn And over

Rob Reilly

and Thanks, Bill, everyone. good Yes. morning,

As net common share. we Bill of diluted or per reported first quarter mentioned, just $X.XX income $X.X billion

basis. and is compared Slide compared X Our $X.X billion the average Loan or to grew billion first XX% in is balance linked $X.X X% was relatively quarter. although Investment to to an $XX.X fourth loans XXXX presented billion securities remained X%. of increased portfolio $X.X the or billion quarter, $XXX on replaced sheet the first growth of quarter Total runoff. on purchases flat Securities or billion, year-over-year. quarter

securities. averaged up down billion the were first year-over-year. X% quarter balances in or billion Our $X.X linked $XX.X fed commensurate billion $X.X and loans grew billion at slightly growth quarter with and Deposits $XX.X linked the cash quarter, for year-over-year, and

as March XXXX X to of December up be XX, equity III X.X%, of was from our As Tier Basel XX, ratio common estimated X.X% XXXX.

linked deposits book than as of on was increase per of lending X% common decline it of billion, dividends X%. commercial slide, lending And or a XXst, capital returned March or increased $XXX $X.X driven value billion net X.X quarter. to million. despite million were common first which in Total and as strong capital $X.X more $X.X our increased shares loans the we and year an is not approximately billion $X.X or income. the by compared ago. billion noting shows $XX.XX spot balances grew quarter while $X quarter. fourth X the Slide compared our million generated tangible to growth over in ratios shareholders fourth And balances repurchases agency detail. share billion, XX% that this loans warehouse loan multifamily of share X% Average We maintained were worth $XXX we with of the common our more Importantly, quarter, approximately even for seasonal our

we out corporate categories: portfolio commercial our banking cash non-CRE three traditional lending; be loan real As flow; estate. institutional pointed and and into divided secured previously, can

which linked in of and flow heavy traditional quarter, growth new from in grew related lending cash contrast competition, half this in customers, category we the This including Our of is X% non-bank reflecting growth lack experienced to down activity. higher utilization. and higher to existing the pay second lenders, XXXX, was including growth

XX% linked continued growth strong we see quarter, secured has quarter lending year-over-year. first and the in which to increased During X%

business in estate primarily due commercial to also our declined warehouse linked competitive real but the to quarter, seasonality the loans due pressures. of Lastly, lending

$XXX deposits. consumer a both accounts. growth by reflecting year the and And ago, the seasonal quarter continued in linked residential decline. Compared On the to we substantially increased In Average growth balances home education see growth shift $XXX compared mortgage, $X.X side, to the fourth deposits card as first declines and credit while quarter, was increased or and to deposits. commercial million same X%. average in million interest-bearing $XXX in had expected, by We billion comparisons offset approximately increased in loans interest-bearing non-interest-bearing loans, in year-over-year. deposits, approximately consumer to deposits equity unsecured auto, million to from continued and installment quarter quarter a

the quarter. the in increased in beta deposit cumulative fourth from XX% first quarter overall XX% to Our

For deposit held than but the continue year, at interest to current remainder beta to a we lock. pace the given year of rate expect the our slower increase Reserve last Federal

interest income the quarter total X, linked first you for despite to income. was see Non-interest Non-interest fourth linked lower the can was the to in quarter income million quarter well two $XX fee $XXX down million seasonally revenue days X%. managed. Slide Net $XX be on or fewer million. million quarter. quarter As losses expense expenses to the flat $X.X stable credit as first billion, quarter Provision declined X% relatively was $XX compared reflecting compared increased continued to fourth in quarter or

in rate first tax the XX.X%. quarter effective was Our

we be tax For the the full expect year XXXX, rate to approximately to effective XX%. continue

of performance more this drivers key in the discuss detail. let's Now,

and price to the linked $XXX to by offset derivative in days $XXX driven declined and interest asset were services million which residential X% and the charges were In quarter. and includes in equity declined Net value increased or impact offset comparisons, by X, and to non-interest was quarter margin valuation Fee higher quarter, XXXX, a million X.XX% income of the or quarter Other residential asset grew lower total quarter funding and seasonally which Visa $X.X consumer both first by or $XX and fair compared mortgage corporate fees and services, was interest on as in points million in service common increased a the in primarily to XX%, quarter, deposits. X increased management changes first $X consumer fourth $XX reflect the revenue. earning linked partially Visa fourth both fee fees These quarter flat which billion declines to due or non-interest income despite Other adjustments first costs income adjustment year-over-year. Slide growth volume income in balances. higher $X due year-over-year. increased net up the corporate transaction stock. X higher quarter. linked services RMSR year-over-year. impact in $XX million the income average lower fluctuates X% mortgage million negative with million were offset balances points basis of part income interest declines in first yields fewer Compared to share asset compared quarter two income of by X% Turning million Net of non-interest of essentially management markets of and partially stable growth basis

business well decrease Compared same year fourth marketing Turning quarter unchanged expenses or million expense drove to and personnel Equipment the other grew, growth. expenses a period Personnel were $XX total essentially expense. and ago, marketing the from were both to quarter. increased increases occupancy, X%. Seasonality and quarter. as lower in as first Slide the reflecting expenses in and X, in investment linked

first was the XX% to ago. in overall and compared us focus disciplined quarter, continues our in approach. year Our for with a XX% we Expense efficiency management be a ratio remain

we goal XXXX improvement target. in know by our we program achieve costs you $XXX our reduce million a to through confident have As full-year and we're will continuous

provision $XX Slide million On on presented million. are million X. million and $XX losses metrics net charge-offs quality to to basis a a quarter $XXX credit linked for credit Our $XXX increased increased

Notably, XXXX December XX, $XX recoveries forward a by $XX linked linked side net provision $XX both down million credit to home our Commercial for XX, basis and quarter. commercial a higher charge-offs consumer that very as related with X%, quarter and quarters. charge-off quarter, XX, increases in loans net Overall, consumer and of charge-offs XXXX million well card linked million million declined ratio utilization and X%. certain Non-performing million to the strong credits. for $XX of reserve lower the total primarily March or at were in On remained to to as and past loan Consumer this levels for net higher down loan increased in decrease commercial unchanged indicators our reflects loans driven $X total linked net our million. loan and XXXX. of or remained increased quarter $XX low has delinquencies March was provision increased by and losses growth four lease X.XX% from linked non-performance equity. as at $XX as are level X quarter million loan compared lending The increased allowance charge-offs points at loan

Our overall strong. credit quality remains

credit good current importantly, reserved our credit of as And However, growth we’re low signs any loan summary, mix posted we levels PNC and at not very strong some of issues. specific to believe volatility see pace to loan continue be and in seeing and historically first appropriately continue environment due provision, quarter-to-quarter releases. quarter the reflected the We that of we In for timing broad metrics. of based consistently to the will quality these reserves results.

and an GDP no increase the we this expect year. this steady in we year, short-term rates For longer continued in balance interest of expect growth

remains guidance shared we year with consistent full earnings call in Our January. on our fourth what quarter

leverage operating continue Importantly, in full remain XXXX. for X% and positioned deliver well quarter to the year of operating we we the leverage positive first XXXX, generated over to positive year-over-year

X%. to Slide compared XX ahead reported to second first we and loans to approximately Turning XXXX results, average up XXXX quarter looking expect quarter to be

We expect total net interest up income single-digits. low be to

We up single-digits. expect fee mid income to be

excluding expect be and activity. $XXX million non-interest We income other between to $XXX and net million securities Visa

with between take be provision to million. your We and expect that, ready and expenses single-digits to And up $XXX to Bill and be $XXX we are questions. low million expect I

Bill Demchak

pull you would Silvana, questions? for

Operator

instructions]. [Operator

the Evercore comes your Pancari question John first with line question. Please ISI. of with Your proceed from

John Pancari

on the seeing to is give you’ve us to that it even you driving balance enough X%? is front, up of the better loan potentially full you downs, more on know I if and color sheet kept what you're X% your this utilization that something growth a On just year side, could loan line upside the and that’s bump pay little the is or to think see unchanged. growth sustainable there

Rob Reilly

Yes. Good Hey, morning. It’s Rob. John.

just a things. So couple of

In of growth commercial were that we on growth, predominantly with composition loan the terms side. of the was the pleased

activity of cash contrast growth increased think and And I in legacy I categories, to think our three when very you markets, about in second strong was -- talking half the that category I traditional what talked across just were markets. very the those in strong expansion markets commercial the about XXXX. flow was the

feel we that. about good So

as to range where average we far guided the here we’ve to I growth. to think but change good the early full year first and feel tracking We full X% a in and year of premature are we We're growth As guidance, X% the to it’s quarter that little outlook. about X% itself. had

John Pancari

to lot Rob. Thanks, Fargo know straight And in of the just room. just regarding the there I and I Okay, to get speculation alright. elephant there then Wells want post, but will be more separately would what attractive not why your a Bill, to to and love is I thoughts, competitive just position how where if out interest importantly you're your go of would seated? Thanks. only would any it’s possibly thoughts view your -- at PNC you certainly about that more stay the get

Bill Demchak

like know Almost I communities like here, here. with, clients, company, I even career I that. I work our I the will our our I how like prospects, like people don’t to I by like and answer I like my end our job

to speculate or failures that, our at not Beyond competitors. going I’m on successes

Operator

Our line comes the Stanley. next Please from Betsy Morgan question with Graseck of proceed.

Betsy Graseck

that on rate business. just cetera? better. disruption one in how permanently is understand markets in about competition a Just I the questions, interest growth you're of about do the a that to year and And talked or interest is thinking in feel loan I you non-bank couple wanted commercial the you the to coming the space know do you this pay just are slowing higher you slowdown feel had downs temporary -- capital the and and et due XQ’s seen last rates the

Bill Demchak

markets I question. And independent up credit gathering But we in that. I the time in the of standalone think that which volume unanswerable an almost pace mean at quarter, our It’s we the crack Betsy, same the at fourth have utilization some of we saw in continue would to just totally market. had on the be clients. pick new saw helped

and the what we pay greater we the downs utilization client So uptake growth, yes. reason the future But whatever see and brings for slowdown will the seen retention, and stronger have I think here. in

Betsy Graseck

NPR then helpful. Fed has the goal moving got the separately, there their advanced banks. out And approaches on that’s regarding posts Now

of opportunities that? you generate through us you're could assuming you’ve through So -- approved you would And NPR that you function as what that a how capital give written? with thinking a to incremental for does do you of the sense been get how that as the think

Rob Reilly

in the the interested me us Let there, know, you five of of as are as start. so is midyear ability More elimination of the and items approaches two three in for examine encouraged for the Well of work a the possible are that to that. out meaningful the will [ph] proposals, were [DFAS] would we AOCI, One other you by proposals Betsy, elimination interest your advanced not areas. opt lot which be key us. then the the of

from the threshold to Secondly, XX% somewhere the LCR and third approach modified particularly a reduce approach deductions refinement of meaningful to in requirements XX%. send our stake. is then BlackRock between for is full which potential us because the And to a the

So early us. for

we by a But have potential answer for all We encouraged until don’t for approved, are firm us. in all they're We of see that. that you.

Betsy Graseck

the to et just would impact I NPR a goes you understand reason make if mean for when I And indeed say AOCI at cetera, there adopting that not through? look you is change sure

Bill Demchak

obvious terribly Not one.

Rob Reilly

to on say I Yes. but able clock to we’ve Not that can got be the decide time so.

Betsy Graseck

And Okay. you size… can

Rob Reilly

inclination Your is correct.

Betsy Graseck

of But it And then moving as you sense could us to quarter, lastly, a I know of the could you that like size come March today would prices occur change size if give through stand XXst? obviously. the a and capital were free-up like because target last it’s you

Bill Demchak

-- said an in that’s sense it you estimate, and could add X% to an as that just the of said but and this rough What ratio, that we as a gives again combination capital much Yes. lift. is we estimate our

Betsy Graseck

That’s right? CETX, Okay.

Bill Demchak

CETX yes.

Operator

from McDonald Please Our with proceed comes John question. your with next question the line of Autonomous Research.

John McDonald

range leverage ask is the the the the the get year. that? you looks I take and Is if parse XXX the linguistics it to it of kind XXX Rob, what upper for target the wanted that in basis try points. to fair, for end shooting leverage it to a I positive of year, and goals to of in would you're like new to outlook about in operating for operating

Rob Reilly

Yes.

I we think our year affirmed that’s fair and full guidance.

get to that. to to we're math to and first quarter, the do can you So X.X% X% tracking

that’s very fair. So

John McDonald

full good representation X% expense flattish? little here getting or is, get And kind the what of a you have saves guess then through do ..? your that year-over-year, is a gather of is what you to and the steam of for which expenses kind to am I year consistent this at shooting year with up that were closer for you’re outlook I And

Rob Reilly

terms I here positive with that’s the what is operating think -- our it primary first leverage your in so starts which goal. just question of Yes,

Our be back expect for but of thing, which revenues then to that to case growth guidance forward. range gets leverage where end I go would is on the expense be going we higher good the the and single-digit a just It was low if point. direct the that higher are which could operating

Bill Demchak

And vice versa which we don’t that. have

Rob Reilly

right, think way, right. yes, that’s that Well,

John McDonald

affect goals how And difficulty the of did the me interest the flattening last is, net of year? from income curve degree on one for the your then much

Rob Reilly

in the maybe increase income think had built for for because September was a curve while, rate flat the that little not interest more. net much, a little bit and we has I goals, been the

so not NIM NIM, so yield flat NII, on more much have more curve So we official though the it puts the on NIM. don't even -- on the puts guidance pressure

Bill Demchak

Yes.

think lower a rate mature life average the in Having at I to flattening existing a those the that, or loans fixed or which in moving and long rally bunch yield of have think of o the either obviously you curve and a our yield securities minus. of need assets our put about. plus making years impacts rolled you the rate assets five now were is parts at assets book. said as the The investing we in end all on fixed

So statement a time long in it income takes show NIM. for the that to in and up

final seen if whole here pattern, what year. a expectations betas forecast time, is, The it ability than the had but started through grow if same fed a see continue when seen remains later to And sense to of we’ve dwarfed which on to in will repricing the income, are betas might bucket. the rise we're had -- what in we that and would've we all makes to away the less -- factors quarter course original total really have those sort loans year. other expected deposit of on commensurate by our interest to fall risk But this our we happens be we of obviously funds as first point relates is holds, the thing in our for at of pressure in net we what

Rob Reilly

holds. our And that’s year why right. full that’s guidance Yes,

Operator

question. Najarian with comes Erika your Our Bank next from question Please of America. with proceed

Erika Najarian

to follow-up deposits. the had commentary on Just wanted you that on

strategy digital they to are? you if established September keep can more if on So robust short continue your context national where a potentially betas fed continues easing newer comment of was how to rate a rates And markets markets? hike or will or be there your your give on us the wasn’t Bill

Bill Demchak

a we're betas in are than today. where seen that, going Both, cycle up end seen towards necessarily of you would end not were In our you at higher they rate little have total the but I rate of extent cumulative environment think to going are to have to actually the funds time the expectations, last historically at spike we cycle. a they that this might much bit the necessarily go bit, least -- accelerate of for say beta traditional don't the

on stay have since our Our newer -- of likely offerings price would hike markets basically are sort been the there. and stable last

terms of I success guess effort, would of the a things. couple I say In of

We're down particularly dial you want by new spending deposits chart, is, the deposits up our of to deposit are of $X today first The you -- with more not billion your because platforms. somewhere price but honest top those paid balances being you're be size entrant you ... as repricing time or almost spend we on any more a time over existing today

Rob Reilly

Than national digital.

Bill Demchak

doing to more about of learn are but usage different and interested many effectiveness We're things strategies markets. the going as as dollars, rollout of less word the spending it yes. more trying of the to pricing, additional maybe this experimenting, I’m accelerate day-to-day, of what use the sort activation, we activation in right, balances into want marketing of digital, worried to we I’m the that’s so the accounts. other National time, relates accounts

Rob Reilly

And the mix of distribution. the

Bill Demchak

Yes.

Erika Najarian

my just And if question could second zoom out. I

shareholders forward-look capital. good profile? two optimal positive bank we your I’m expect all leverage, as a do positive is terms US stead, over the of to in risk credit to CETX equity that returns ratio superior your operating you be can continuing the XX% an wondering and what your in for quality quarter, next enjoy? the in returned seems within continues with equity You this on intangible to and years, if think what your think be range tangible And common optimizing

Bill Demchak

You that? with want start to

Rob Reilly

terms don’t you We're we up. going of ROE just see our would know. direction you in the that have Well, encouraged summarized targets, and Erika, as returns

tailoring as and of these We have E, know, of that you affect a might some of some lot that. proposed

in ratio what of need of to that run, CETX we last proposed down following So is little do the could bit for handful terms always that number around we said come today. but have we've rules, best always years indicates said X.X% a X.X%, the the that we have

Bill Demchak

we Well solve of a to doing it sort that, that on of since buffer would proposals with vis-à-vis forward own or be would we as capital been doing we be the terms ratio that my our where clear what year numbers fed’s -- of What's in targeted below function outcome drive tailoring stress is to do severe actually as the or outcome, the as the we're potentially we've for the outcome every go severe drive beginning. in operate interesting our level we needed X%. to that view of that likely basically would a

breaking run even X%, my So say some says, adverse to in economy. to matter the other of we no in as that? for also what a wouldn’t well above run I run need going math ever simply that if way for there a is actually Let's fear you're optics to down buffer reason that capitalized because but X% practical a X.X% math quarter mean all could do that on a the by I old or

point issue is we we're to sit between hard others parse right, So -- have as tailoring come have biggest peers equity, return a to carry we differentiation The we're a to have of is can these we going on return against Rob’s that. out, but E. look ways a different at our have rules and going and XX -- us the lot on

have goodwill. a also We less

have basis, that a without assets tangible are earning effectively a we on So don’t capital. other

Rob Reilly

to don’t … we want And

Bill Demchak

be so it. And

of be balance being to is a the outperforms, So with but basis of think a conscious stress the the the it’s question firm risk to when grow healthy I on company take that long sheet year-over-year happens. let's risks, fortress that basic very be so advantage would answer your in able notion it

will do for done we years, have continue to We that it.

Erika Najarian

closer Thank in the is you. sorry a And -- capital follow what so is the let's the be bank let's proper today, again as say you size risk and what event take appropriate I’m around saying based think optimization pace that you on of time. that But would say for X up much are to of XX to a you just your and ratio were profile?

Bill Demchak

what CCAR, -- we saying I we guiding on leave and basically principles. to capital just want going to you do you’re So don’t return a of out so submitted but are will couple it, specifics of

to more and those simply often looming downturn that you levels lofty than better to can buffer that be capital prices get of shareholders. prices But because much we there a to first through down is to potentially capital our our multiples you the our very value are work where would on which tangible our capital value today but put yet that and I would see return The shares our dividend one is you today tangible happen buyback, see that we’re when multiples and tell at ratio where there value today to drive would time see we in would back intention in in that strong instances healthy buying that build investors. there in our at not are prices. shares some down a you today, not see slow we could in providing for are there book,

Rob Reilly

have we access Because capital.

Bill Demchak

Yes.

Rob Reilly

And to your point, the dividend …

Bill Demchak

And we see real there. value

Operator

Ken Please proceed with with your from Usdin line Our Jefferies. the next question. question of comes

Ken Usdin

you’ve that belief an is where Bill, sheet intra term not Just as and But the the know as continuing quarter or acquirer want balance and along on the given or just play question time and capital PNC happened feel that of you being growth, you landscape can long your far M&A. that would where usage, I light attractive on to the transaction large are your share even where just lines shares the as of about for any the stood comments a over just of longer not? just evolution the

Bill Demchak

the for changed, think scale kind has consolidated Nothing market. spend is it there to technology we particularly what as challenge SunTrust great think set sense I competitors means a BB&T of them makes of and I merger into have up on a waking get to the of

have think already we've done that already We I capability. spend. that

We least because because the prices have outcome simply change also grow at the doesn’t but the doesn’t price, we strategically. ball off sense acquisitions, in of of take on side eye and if ability just don't organically. the value our not anything of I today just which to small make particularly because

there see is will continue you don't is but would technology if major in clients. make that to If aren’t product use crack and but capital have see execute to us offerings difference a credit our You a disruption, we ads which to the scale on market today there look take or to that. see if is, advantage us a we of there in

Rob Reilly

done in we’ve the Like past.

Bill Demchak

have the of think our we strong a organic growth. hand to we in now done we’ve play really But pursuing As as just past.

Ken Usdin

Rob one And Understood. question for you.

what and ad off still you cash where of And off the the are seeing roll putting is? the positive book? fixed assets the curve of book In so, the flows rate on stuff has fixed-rate and loan securities if gone, benefits flow where as terms new versus you’re

Rob Reilly

as first were little the we’re half the a quarter actually to has here curve buying quarter, linked latter were yields Yes, in the of flattened bit was accretive so we Ken, the what -- out below. the in

Ken Usdin

that the expect to as ahead And sorry would go Bill? you roll forward, be case you

Rob Reilly

Yes, I do. slightly do, below, I

Bill Demchak

you more sequel, in that, don’t years. you a than bit since period have yields little rally XX eventually quarter, all our a will I if know, risk show look swap -- that on again I’ll seen -- our fourth look up else and delta of in through that And if mean equal will five asset just all point the XX time years basis I write yields, through … Yes, we at It’s that fixed time. long that

Rob Reilly

on now little so dramatic a is But point to so purchases. a below curves Yes, outcome our change. won't the your flattened out, the the be we're question bit

Ken Usdin

guys can on as so you as where are environment point swap carrying point up I you get far be want the that construction to forward? And rate the to the do to point, have this your delta, hedged set you

Bill Demchak

are and -- they into sense but we are is invested. went as ever effect, I under are and we it yield hindsight made this going said into but disbeliever into Having invest play they that. where we and effect still not to short will of this of am We're XXXX a in watch we where on kind mistake went that, of this mean we're curve, firm equal in else -- out. I a rates type all maintain in a we

Operator

Please our with the Barker question Jaffray. question. your from comes line with Piper And proceed of Kevin next

Kevin Barker

before third guided follow-up to the reinvesting to on Just you deposit of pricing a quarter would you likely at continue Rates move flattening to that expect and Obviously yields staying NIM question. mean fixed-rate here, higher NII bit I little on I second here in stable on the and maybe out? flat … a negative assets, pressure mean

Bill Demchak

you’re side that else have well through see so points of points we roll on that be to what loans rate drop NIM There of X basis as shock as There fixed -- NIM spreads to of year. around them we’ll course replace would and it is a lot relates other or of all stuff a securities basis as and see. move yields. should yes, inside X down the to lower we and us Yes, But move at as it that that, are equal, things to the wait asset of we and couple drop going wouldn’t buy. many the

Rob Reilly

Yes.

then a the cost right the big and I variable those betas deposit deposits. that’s obviously and of is think

Kevin Barker

any And credit. your following did particular -- one-off some above of on Was around your given we with the it but And you manufacturing your that trend did come credits guidance simple come around saw guidance. comments pickup you in feel Obviously consumer then NPAs? know provision did C&I or the the comfortable mention in anything lending. there above and

Rob Reilly

in themes. terms No, Yes. of is Rob. Kevin. Hey, This nothing broad

one don't there. was that’s manufacturing see book, the But guidance because loans in any handful credits common the of part XX that but the there’s specific couple supplement billion then provision that in largest this over there, quarter about you in of large theme, of really names Our a a had of our growth. that’s

volatility quarter it’s we and that variance these given levels names a off couple that’s couple theme, no could get quarterly you lower a broad of So off and any just little working of a experience. in on, go could the names go

Bill Demchak

recoveries are masked want in past at this the very achieve. off, has they to we’ve level this to One high is when gotten the little place point the of rating and crisis the a at recoveries corporates simply starting were basically they in operating a that out things bit trended where certainly kind largely probably is

back we slow are as bit. have traditional have of business upgrades to is growing less the they so a where loans And get to which we provision and people of sort little causing

Rob Reilly

reserves off ratio, is levels. again, But of quarter a it -- you When at these such almost take it it's loan X.XX, lower X.XX. to so function our every a look not is

Bill Demchak

we way … But not the by solve do

Rob Reilly

No, we yes. that, solve don’t solve that don’t literally unchanged. is It we yes,

Kevin Barker

quickly, just structurally the in forward, would in with expect higher And severity years? past you you’ve so expected frequency line what going

Bill Demchak

Higher up or follow severity meaning given …? higher loss the

Kevin Barker

and so more less Higher loss default? on there’s if yes, upgrades losses, any

Bill Demchak

single a on default. None

I charge think all unsustainable. ratio equal, that we’re a at else off is running

Bizarrely, seeing time same will through charges through everybody time thing. way, would everybody as that’s you the what don’t yes that know So higher. the we're expect By through and quarter this saying a keeps you the cycle to gradual ours be increase. see else but I

CECL which till But the if else hard comes us and This driven there the so at just anything provision. along. point. way see from you nothing by time is growth to bothering loan take will growth you more by quarterly every in And quarter stomach, in that’s this your find was impact that wait than there now

Rob Reilly

important the point. That’s

Operator

with line next RBC. comes from Our Please the proceed with Gerard of your question. Cassidy question

Gerard Cassidy

through strategy you technological Can have digital of actually that banking. metrics shareholder some mentioned can maybe innovations monitor markets into may see them about to we what letter point Bill, in do you're do as doesn't rather old-fashioned we sense today you measure see that make are mentioned than the the penetration we or that you through or your you expanding you already share the the with success having success? at us it as that acquisitions going from making organic How to growth? outsiders with

Bill Demchak

basis active, that through in of is deposits, we on moved following clients, and are we're branches digitally working platform That’s we started on offerings many we notion, as savings at so as out that and virtual how our national around how -- geo-fenced how what to are is product tell metrics yield what a build cost so a thin launch convert how and fair our many life. and markets, C&IB for are many expansion you wallet ultimately how forth. digital out also with we higher a will completely into a go the to that. Gerard, with on many now many this learnings strategy how we our and accounts, to to bring that looking I exactly largely would with what But that, inside starts associated try question, a full-time

open tell be we did just Kansas? of why to goal All continues in before I testing we and come thing this each be. out can what to time markets and stated that spending new the in learning we’re think we as think -- these with now of branch the second developed we Right

Rob Reilly

later Dallas, month, in midsummer. April, This

Bill Demchak

it Still on spending clear we that early that of around of to I these we not markets want bucket new huge dollars we we’re progress get strategy each go-to-market at on once show sort this very that. can results our but do a get but and

Gerard Cassidy

folks. I look ratio mid call in many us point XX%, is inroads for guys of to today common the return an are mentioned that the on to you the that have in targeted down toward Again I profitability you you you on think hope look bring you But your up their follow make you tangible bring And then and color down do of XXs. good. efficiency ratio some guys you focus as you ratios it’s where really drive Very how know to which how that number do into higher? at earlier question, when roadmap get would may -- the course give started know equity a kind your you what you not about Can competitors down? of bring

Bill Demchak

So annual if you my read letter.

Rob Reilly

Well, he did.

Gerard Cassidy

all remember didn’t did, I of that.

Bill Demchak

it? But I think of part

Gerard Cassidy

Right.

Bill Demchak

we’ve player larger that invest be to of to been years. eight continue at And share largest country. is onslaught saying don’t to need to ratio to are materially this by number we of largely of burying quickly great we an aggressively consolidates with we a efficiency and peers an try want of in that drive to back the this digital not consolidating greatness point whose are bluntly down and people seven industry, going here, that the issue shrinking those banking. mange which not but great to in many sand and heads happening could across do or players to the offerings. retail this our offerings going is that the one basically doing I we survive on aggressively investing our themselves and last to what what the in for And Gerard,

course So we would of that great the could metrics stop couple you our next we fate. show doing doing that I for looked seal so and think of the and years in

and So real now. is organic transformational good here that intelligent shareholders do our just a we through change going of risk-adjusted think return is an focus inside right opportunity have on to industry growth, for we that

short be outcome, an number. story long a not that targeted So will

Gerard Cassidy

cutting meaning more the you just number, driven you obviously being on expenses, back better numerator, expenses? like denominator the you're on than it think investing is in at a the the any growth, which -- improvement mentioned said it’s from rather more growth you not number, will responsible Do targeted come bottom is

Bill Demchak

best I’m play you do this sleep. guess I this I’d as can My most nights imagine Yes. struggling is when to through, thing whole

will heard merge increase deposits digital cost will has me in will up, which think occupancy what as price an you of there’s time. in income talk see through whereby and the physical will is already you the the effect will such you this a paid go marginal offerings about, happened, see costs offerings statement if costs I see technology you change you see happens drop, for in you thing see footprint

but are this market. banks our cost existing as cost ratio using see and you physical if across think in marketing, is share as to to by removing consolidating my best on I networks, going much efficiency deposits increases, otherwise doesn’t grab things we … and expand technology as to plans our move in it offset to so going ability materially many guess depends operate It gains the the the MSAs through get don’t are today. time their And E change total You they

Rob Reilly

distribution. At

Bill Demchak

Yes.

years line So the and items I this metrics the think but materially in the don’t gross the potentially in consolidates. out change do as growth industry income statement accelerates

Rob Reilly

Yes. is And big clearly about the investment in of Gerard But a leverage. it’s Rob, our add is spend. I’ll the -- it sort component just short-term operating of

part are we're growing, revenue. are if So okay growing with expenses provided that that they revenues especially of

have efficiency businesses as fee great higher have to and we ratio those can. grow we So that much as like we’d

Bill Demchak

to we not spend we're say and money we're number every thing is build the as We base. talk am of we expenses. budgeting and spend going the is much as -- talk obviously at billion, investments about we into good will to whatever amount from managing necessarily process not go very make I what our this year don't the a are I we year indifferent because the And up and the that $XX.X $X, new what want we're about to final

see wanting will management think to ensure to is consolidating necessary maintain doing that very market able be been and we're continue investment that. at when seriously. we’ve going be expenses aggressive But So and you that, take we the inside the our us I place to of of to

Operator

further at are back this I'll the no As turn questions call to there you. time,

Bryan Gill

look joining much and with working to this forward you very we for us Okay. Well, thank you quarter.

Bill Demchak

everybody. Thanks,

Rob Reilly

you. Thank

Operator

today's concludes This call. conference

You may not disconnect.

The PNC Financial Services Group, Inc. (PNC) 12 Apr 192019 Q1 Earnings call transcript