PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Betsy Graseck - Morgan Stanley - Analyst : <_ALACRA_META_ABSTRACT>Yeah, thank you. I do want to start off with a topic that everyone's interested in. And given that we are most of the way through the quarter, just wondering if you had any guidance update for us. Robert Reilly - PNC Financial Services Group Inc - Chief Financial Officer, Executive Vice President Well, we'll go right to it.

Question: Betsy Graseck - Morgan Stanley - Analyst : No change, all right. Now your guidance, I believe, does include two rate cuts.

Question: Betsy Graseck - Morgan Stanley - Analyst : One in July and one in November.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, my bad. So then I guess the question is, if we don't get any, I guess, it doesn't matter for the year anyway.

Question: Betsy Graseck - Morgan Stanley - Analyst : Now you said you worked hard to get there.

Question: Betsy Graseck - Morgan Stanley - Analyst : What did you do and the hard work involved?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right.

Question: Betsy Graseck - Morgan Stanley - Analyst : And you got there through swaps. Is that the primary way?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Now expectations. Let me know if this is correct.

Question: Betsy Graseck - Morgan Stanley - Analyst : For NIM and for NII is to bottom this quarter.

Question: Betsy Graseck - Morgan Stanley - Analyst : And then increase towards the back of the year. Could you walk us through the driver of that uplift?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Okay. And that's it. You don't need anything else other than that?

Question: Betsy Graseck - Morgan Stanley - Analyst : Because your current guidance for '24 is for net interest income to go down, right?

Question: Betsy Graseck - Morgan Stanley - Analyst : 4% to 5%?

Question: Betsy Graseck - Morgan Stanley - Analyst : So then getting to record 2025, obviously --

Question: Betsy Graseck - Morgan Stanley - Analyst : Yeah, '25 is --

Question: Betsy Graseck - Morgan Stanley - Analyst : Punchy. And it's -- can you just help us understand how much of that '25 growth is coming from just the rollover?

Question: Betsy Graseck - Morgan Stanley - Analyst : Majority is. Okay. So your front end securities duration?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay.

Question: Betsy Graseck - Morgan Stanley - Analyst : And --

Question: Betsy Graseck - Morgan Stanley - Analyst : And how much of it is swap roll off? Is that helping at all?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Okay. And so the duration of the securities book that's really driving this is --

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. And then I think a couple of weeks ago, Bill mentioned that the NII guide for 2025 also includes an assumption the forward curve comes through.

Question: Betsy Graseck - Morgan Stanley - Analyst : Does it matter if you don't get a rate cut?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right.

Question: Betsy Graseck - Morgan Stanley - Analyst : And if we do not get rate cuts? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. Okay. So sounds like a pretty kick back here for you in '25?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, good. Well, let's dig a little bit into some of the details on the NII driver as well relating to deposits first and then loans. So on the deposit side, cumulative deposit beta, I think it has been about 45% this cycle. And the question here is, are you still seeing rate-seeking behavior among your customers that should we still expect some mix shift between NIB and IB? And then how are you thinking about deposit betas in a down -- in a rate decline environment?

Question: Betsy Graseck - Morgan Stanley - Analyst : Balances are.

Question: Betsy Graseck - Morgan Stanley - Analyst : What's driving this? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay.

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Got it. Okay, very good. How are you thinking about loan growth?

Question: Betsy Graseck - Morgan Stanley - Analyst : And typically, how long is it between corporate client might put up that credit facility?

Question: Betsy Graseck - Morgan Stanley - Analyst : Is it a --

Question: Betsy Graseck - Morgan Stanley - Analyst : What that could mean?

Question: Betsy Graseck - Morgan Stanley - Analyst : So you're talking within a year?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, all right. And what size companies are these that you're -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Now that's also seemingly the book that private credit is interested in as well.

Question: Betsy Graseck - Morgan Stanley - Analyst : So how are you competing with that?

Question: Betsy Graseck - Morgan Stanley - Analyst : And these are clients that you already work with but are looking for different types of structure --

Question: Betsy Graseck - Morgan Stanley - Analyst : So is it a different credit box than your credit launch?

Question: Betsy Graseck - Morgan Stanley - Analyst : Could you acquire new through this arrangement?

Question: Betsy Graseck - Morgan Stanley - Analyst : New customers through this arrangement.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. All right. That's not the focus, but it could happen.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And then the question on how it's being financed from the P&C side, is this equity capital you have invested?

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. Okay. All right. Very good. And I suppose the other question I have for you on loans is the rest of the book?

Question: Betsy Graseck - Morgan Stanley - Analyst : All right. Let's talk a little bit about growth card is like the industry, a little bit higher, but it's small.

Question: Betsy Graseck - Morgan Stanley - Analyst : And did I hear you correctly that you're leaning into auto?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And what about commercial real estate?

Question: Betsy Graseck - Morgan Stanley - Analyst : How are you thinking about that? And it's interesting because, the H8 data has CRE growing, lots of reasons why, and how are you thinking about that book?

Question: Betsy Graseck - Morgan Stanley - Analyst : And the principal curtailment that would show up as a net charge-off?

Question: Betsy Graseck - Morgan Stanley - Analyst : And I believe you have quite a bit of office maturing in the next 12 months. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : 42%?

Question: Betsy Graseck - Morgan Stanley - Analyst : So what -- can you give us an update on the conversation with the sponsors there and the strategy you have for that next 12 months out?

Question: Betsy Graseck - Morgan Stanley - Analyst : And why does something move into criticized if it's not nonperforming?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Okay. Right. Once it's criticized, you have more degrees of freedom around the reserving.

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Okay. And then the other question I just had on is you own a business that services commercial real estate?

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. Special servicing.

Question: Betsy Graseck - Morgan Stanley - Analyst : So you have a lot of great information.

Question: Betsy Graseck - Morgan Stanley - Analyst : Yes.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. All right. Very good. Yes, because Bill mentioned, I think, office values being down between 30% to 40% in some cases. I'm assuming that's coming from the Midland? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Got it. Okay. But your reserve is adequate even with that price action?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Due to the quality of your book or --

Question: Betsy Graseck - Morgan Stanley - Analyst : Excellent.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So then turning to net charge-off rate.

Question: Betsy Graseck - Morgan Stanley - Analyst : Which portfolios would you say you're running at normalized and where are we -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Yeah, and where are we in the process of still normalizing?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. Very good. I keep on looking for when C&I losses are going to normalize, and I've modeled it in by year end, but so far the orders coming in better than my expectation.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, yeah. Adds to capital.

Question: Betsy Graseck - Morgan Stanley - Analyst : So let's turn to fees, and --

Question: Betsy Graseck - Morgan Stanley - Analyst : Oh, no, no. We'll see fees and expenses.

Question: Betsy Graseck - Morgan Stanley - Analyst : Chomping at the bit to get cap.

Question: Betsy Graseck - Morgan Stanley - Analyst : So on fees, you have several pockets of, I should say, businesses that you're running, capital markets advisory, asset management, brokerage, treasury management, mortgage services. Can you help us understand where is the driver for you in fee growth most importantly? And how are you expecting that each of these business lines can (inaudible)

Question: Betsy Graseck - Morgan Stanley - Analyst : And corporate services?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, got it. You mentioned treasury management has grown significantly with high margins.

Question: Betsy Graseck - Morgan Stanley - Analyst : And is that high margin a function of the rate environment? Is that margin --

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. More scale, better planning the quarter. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 11, 2024 / 5:00PM, PNC.N - PNC Financial Services Group Inc at Morgan Stanley US Financials, Payments & CRE Conference

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. All right. Well, let's turn to expenses then.

Question: Betsy Graseck - Morgan Stanley - Analyst : You have a history of track record of delivering continuous improvement.

Question: Betsy Graseck - Morgan Stanley - Analyst : The CIP savings this year is expected to be $425 million, right. That's the full-year expectation. And you're going to be fully reinvesting that. Is that right?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So expenses flat year on year?

Question: Betsy Graseck - Morgan Stanley - Analyst : You've had an investment in branch network, too, right?

Question: Betsy Graseck - Morgan Stanley - Analyst : $1 billion?

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. And then your expense ratio in '23 for the whole organization, 61.5%. Do you have room for that (inaudible)

Question: Betsy Graseck - Morgan Stanley - Analyst : So in our two minutes left, capital.

Question: Betsy Graseck - Morgan Stanley - Analyst : So your CET1 is 10%, 10.1%.

Question: Betsy Graseck - Morgan Stanley - Analyst : Right. And Basel III rules has currently proposed 8.3. How do you think about allocating capital? Are you allocating it under current rules?

Question: Betsy Graseck - Morgan Stanley - Analyst : And then you've got that [beat] to gain.

Question: Betsy Graseck - Morgan Stanley - Analyst : So why should investors get excited about PNC here?

Question: Betsy Graseck - Morgan Stanley - Analyst : Super, Rob, thanks so much for coming here today.