The PNC Financial Services Group Q1 2022 Earnings Call Transcript

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April 14, 2022

There are 11 speakers on the call.

Operator

To today's conference call today's

Speaker 1

conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference

Speaker 2

call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference call today's conference

Operator

call today's conference call today's conference call today's conference call today's conference call today's conference call. And Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward looking information. Cautionary statements about this information as well as reconciliations of non GAAP measures are included in today's earnings release materials as well as our SEC filings and other investor materials. These materials are all available on our corporate website, pnc.com under Investor Relations.

Operator

These statements speak only as of April 14, 2022, and PNC undertakes no obligation to update them. Now, I'd like to turn the call over to Bill. Thanks, Brian, and good morning, everybody. As you've seen, we had a solid start to the year as we grew loans and securities, controlled expenses and our credit quality reserves and capital levels remain very strong. As we previously disclosed, non interest income was below our expectations for the quarter.

Operator

And while we had expected fees to be down sequentially reflecting typical Q1 seasonality, the decline actually exceeded normal as interest rate volatility and Probably the Russian Ukraine conflict adversely impacted certain of our Capital Markets businesses among other areas. As we look forward, we're clearly in an environment of uncertainty here. We're also in an environment with rising interest rates, which benefit banks with increased loan demand, which benefit banks. And in PNC's case, a business or a bank that never changed its Credit Box from credit terms got really easy, a business that has a very or a bank that has a very solid mix of fee based businesses and importantly a bank that has substantially expanded its geographic presence. And I want to hit on that in a second just as it relates to our progress on BBVA.

Operator

I would tell you, I just couldn't be more proud of what we've been able to accomplish over the last about 15 months in total now, but in particular over the last couple quarters. And we still have a lot of work to do, but to put it in perspective, our staffing is largely complete and our calling effort, particularly versus The Q4 has increased substantially and our sales and pipelines are robust. Just to give you an idea of the activity behind this, in the legacy BBBA USA Geography's Corporate Commercial Banking calls have doubled since the Q4 and sales have increased almost 50%. As we expected across CNIB, nearly half of these sales were actually non credit related in

Speaker 3

the legacy BBVA USA geographies.

Operator

We switched to the retail side. We're obviously focused on building customer relationships. Just to give you an idea, our sales per branch were approximately 60% higher in March compared to what they were in December with improvements across mortgages, cards and referrals to P and C Investments. And our asset management group, we're making great progress in strategic investments to hire key people in business development and advisor roles. And importantly, our client The pipelines are really strong.

Operator

From a balance sheet perspective, we continue to deploy our excess liquidity as you've seen with solid loan growth and securities purchases. Spot loans grew $6,000,000,000 in the quarter driven by the commercial side, which saw a nice increase in utilization. In fact, if we exclude the impact of PPP loan forgiveness, spot commercial loans grew 7,000,000,000 the fastest organic quarterly growth we've seen since the commercial defensive draws that we saw at the start of the pandemic. And by the way, we've seen that growth carry into the early part of April. We also remain active on the security side with net purchases of almost $6,000,000,000 during the quarter.

Operator

From a balance sheet perspective, the securities were offset by unrealized losses due to rising interest rates, which Rob is going to discuss in a few minutes. This doesn't impact our regulatory capital or earnings. But during the quarter, we moved approximately $20,000,000,000 of

Speaker 4

our securities available for sale to help

Operator

the maturity to limit future valuation changes due to interest rate movements. Importantly, we saw a solid rebound in the yield on our securities. Overall, We believe we are well positioned for the rising interest rate environment to deliver net interest income growth and NIM expansion throughout the year. Finally, during the quarter, we returned about $1,700,000,000 of capital to shareholders through share repurchase dividends. And importantly, based on our performance, our strong capital levels and the Board's confidence in our execution of our strategic priorities, we recently announced a substantial increase to our quarterly dividend of $0.25 per share to $1.50 or 20%.

Operator

I just want to close by thanking our employees for their hard work and dedication to our customers and communities. Moving forward, as I said, we believe we are well positioned continue to grow shareholder value as the economy normalizes as interest rates move higher and we realize the full potential of the combined PNC and BBVA USA franchise. With that, I'll turn it over to Rob for a closer look at our results and then we'll take your questions.

Speaker 5

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 3 and is presented on an average basis. During the quarter, loans increased by $2,000,000,000 or 1%. Investment securities grew $6,000,000,000 or 5% and Federal Reserve cash balances declined $13,000,000,000 or 17%, reflecting higher securities and loan balances as well as lower borrowed funds. Deposit balances averaged $453,000,000,000 and were relatively stable compared to the prior quarter.

Speaker 5

Our tangible book value was $79.68 per common share as of March 31, a 15% decline linked quarter, which was entirely driven by mark to market adjustments in our securities and swap portfolios as a result of higher interest rates. As a Category 3 institution, we opted out of recognizing AOCI and regulatory capital. And as of March 31, 2022, Our CET1 ratio was estimated to be 9.9%. Given our strong capital ratios, we continue to be well positioned with significant capital and as Bill just mentioned, our Board recently approved a $0.25 increase to our quarterly cash dividend on common stock, raising the dividend to $1.50 per share. Additionally, during the Q1, we completed share repurchases of $1,200,000,000 or 6,400,000 shares.

Speaker 5

Slide 4 shows our loans in more detail. Average loans increased $2,000,000,000 linked quarter And on a spot basis, loans grew $6,000,000,000 or 2%. PPP loan balances continue to decline and impacted Q1 growth by approximately $2,000,000,000 on both an average and spot basis. Looking at loan growth, excluding the impact of PPP loans, Average loans increased $4,000,000,000 or 1%, driven by $5,000,000,000 of growth in commercial and industrial loans, partially offset by $1,000,000,000 decline in commercial real estate balances and average consumer loans were stable linked quarter. On a spot basis, loans grew $8,000,000,000 Commercial loans grew $7,000,000,000 driven by higher utilization as well as new production within Corporate Banking and Business Credit Businesses.

Speaker 5

Notably, in our C and IB segment, the utilization rate increased 85 basis points and our overall commitments were 2% higher compared to year end 2021. And consumer loans increased $900,000,000 with higher mortgage balances were partially offset by lower auto and credit card loans. Moving to Slide 5. Average deposits of $453,000,000,000 remained stable compared to the 4th quarter. On the right, you can see total deposits at period end were $450,000,000,000 a decline of $7,000,000,000 or 2% linked quarter.

Speaker 5

All of the decline was on the commercial side where deposits were $10,000,000,000 lower, primarily driven by seasonal cash deployments. Partially offsetting the commercial decline, Consumer deposits increased $3,000,000,000 reflecting seasonally higher balances related to tax refund payments. Overall, our rate paid on interest bearing deposits remained stable at 4 basis points. And importantly, we remain core funded with a loan to deposit ratio of 65 at the end of the Q1. Slide 6 details the change in our average securities and Federal Reserve balances.

Speaker 5

We've maintained high levels of liquidity over the past year, while opportunistically purchasing securities. This trend continued into the Q1 as we added primarily U. S. Treasuries and Agency RMBS. As a result, average security balances increased by 5% for $6,000,000,000 compared to the Q4 of 2021 and now represent 27% of interest earning assets.

Speaker 5

Slide 7 highlights the composition of our high quality securities portfolio as well as the balance changes from year end March 31. During the Q1, we added to our portfolio with net purchases of approximately $6,000,000,000 However, The increase in rates during the Q1 resulted in higher net unrealized losses of approximately $6,000,000,000 And accordingly, our period end balances remained relatively stable. To moderate the impact of rising rates on security values and correspondingly AOCI, we transferred approximately $20,000,000,000 securities from our available for sale portfolio into held to maturity at quarter end. Importantly, fluctuations in AOCI do not have an impact on our earnings. However, we are mindful of the AOC impact on tangible book value, and we'll continue to evaluate potential opportunities for further transfers.

Speaker 5

Turning to the income statement on Slide 8. As you can see, Q1 2022 reported EPS was $3.23 which included pre tax integration costs of $31,000,000 Excluding integration costs, adjusted EPS was $3.29 During the Q1, integration costs reduced revenue by $16,000,000 and increased expenses by $15,000,000 First quarter revenue was down $435,000,000 or 8% compared with the 4th quarter. Expenses declined 619,000,000 The Q1 provision recapture was $208,000,000 primarily reflecting the impact of improved COVID-nineteen related economic conditions and our effective tax rate was 17%. So in total, net income was $1,400,000,000 in the Q1. Now let's discuss the key drivers of this performance in more Slide 9 details our revenue trends.

Speaker 5

Total revenue for the Q1 of $4,700,000,000 declined $430,000,000 linked quarter. Net interest income of $2,800,000,000 was down $58,000,000 or 2%. Higher securities and loan balances as well as increased security yields were more than offset by a $74,000,000 decline in PPP revenue due to loan forgiveness activity and the impact of 2 fewer days in the quarter. And net interest margin of 2.28 percent was up 1 basis points. As we recently announced and effective for the Q1, we re categorized the presentation of our non interest income and provided an update to the related guidance.

Speaker 5

Consistent with those revisions, 1st quarter fee income was $1,700,000,000 a decline of 2.90 $6,000,000 or 15% linked quarter. Looking at the detail of each revenue category, asset management and brokerage fees decreased $8,000,000 or 2%, reflecting lower average equity markets. Capital markets related fees declined $208,000,000 or 45%, driven by lower M and A advisory fees, mostly due to elevated 4th quarter transaction levels, but also some delayed transaction activity in the Q1. Card and cash management revenue decreased $26,000,000 or 4% driven by seasonally lower consumer spending activity. Lending and Deposit Services was essentially stable linked quarter, declining only $4,000,000 Residential and commercial mortgage non interest income was 50,000,000 primarily due to decreased commercial mortgage activity.

Speaker 5

And finally, other non interest income declined $81,000,000 primarily due to lower private equity related revenue and once again compares to elevated 4th quarter levels. Turning to Slide 10. Our first quarter expenses were down by $619,000,000 or 16% linked quarter. Excluding the impact of integration expenses, Non interest expense declined $243,000,000 or 7%. The majority of the decline was in lower personnel expense, primarily reflecting lower incentive compensation.

Speaker 5

We remain deliberate around our expense management. At year end 2021, We achieved our objective to reduce BBVA USA's annual operating expense run rate by $900,000,000 And as we previously stated, we have a goal to reduce costs by $300,000,000 in 2022 through our continuous improvement program, and we're confident we'll achieve our full year target. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on Slide 11. Non performing loans of $2,300,000,000 decreased $182,000,000 were 7% compared to December 31 and continue to represent less than 1% of total loans.

Speaker 5

Total delinquencies were $1,700,000,000 on March 31, a $286,000,000 decline from year end, reflecting lower consumer and commercial loan delinquencies. The majority of these decreases resulted from our progress in resolving BBVA USA conversion related administrative and operational delays. Net charge offs for loans and leases were $137,000,000 an increase of $13,000,000 linked quarter. Our annualized net charge offs to average loans continues to be historically low at 19 basis points. And during the Q1, we reduced our allowance credit losses by approximately $300,000,000 and our reserves now total $5,200,000,000 or 1.8 percent of total loans.

Speaker 5

In summary, P&C reported a solid Q1 and we're well positioned for the remainder of 2022 as we continue to realize the potential of our coast to coast franchise. In regard to our view of the overall economy, we expect strong growth over the course of 2022, resulting in 3.7% average GDP growth. We also expect the Fed to raise rates by an additional cumulative 175 basis points through the remainder of this year to a range of 2% to 2.25% by year end. And all of this is consistent with the update in our recent 8 ks filing. Looking at the Q2 of 2022 compared to the Q1 of 2022, We expect average loan balances to be up 2% to 3%, which includes a $1,300,000,000 decline in PPP loans.

Speaker 5

We expect net interest income to be up 10% to 12%. We expect non interest income to be up 6% to 8%, which results in total revenue increasing 9% to 11%. We expect total non interest expense to be up 3% to 5%, and we expect 2nd quarter net charge offs to be between $125,000,000 $175,000,000 Considering our reported Q1 operating results, 2nd quarter expectations and current economic forecast For the full year 2022 compared to the full year 2021, we expect average loan growth of approximately 10% and spot loan growth of 5%. We expect total revenue growth to be 9% to 11%. We expect expenses, excluding integration expense, to be up 4% to 6%.

Speaker 5

And we now expect our effective tax rate to be approximately 19%. And with that, Bill and I are ready to take your questions.

Speaker 6

Thank Our first question is from the line of John Pancari with Evercore ISI. Please go ahead.

Operator

Good morning.

Speaker 5

Hey, John.

Speaker 7

I want to see if you could give us a little bit more Color on how you're thinking about the capital markets revenues from here. Obviously, you saw a pretty good step down this quarter given The activity that broader markets are clearly just wanted to get your thoughts on how we can expect To think about the remaining quarters, if you think you could see an increase from here. And if the capital markets outlook has impacted your Full year revenue view, is that baked in there as well? Thanks.

Speaker 5

Yes. Sure. Hey, John, it's Rob. Good morning. So in regard to capital markets, You'll recall at the beginning of the year, our expectations for capital markets was to be down approximately 20% or so from 21 levels, just because the 2021 levels were so elevated.

Speaker 5

The Q1 was slower than we expected even at those reduced levels. But for the full year guide, I have most of that back in there. So most of what we expected to occur in the Q1 that didn't occur is still in the full year guidance. So that's why we're still 9% to 11% growth.

Speaker 7

Okay, got it.

Speaker 5

All right. That's helpful.

Speaker 7

And then thanks, Rob. And then secondly, On the deposit side, just given the move in rates that we're looking at here, clearly, a lot of focus on deposit flows. For the Spot balances you saw about a 2% decline in your deposits there. Can you maybe give us a little bit of color on what you're seeing In terms of the positive behavior here near term, is that more commercially oriented in terms of the deposits that you saw in terms of the decline? And then Can you talk about your betas that you think you'll see in the near term as rates rise and then further out after the first 100 of debt hikes?

Operator

Thanks.

Speaker 5

Yes. Okay. This is Rob again, John. So on the deposits in the quarter, we saw a spot decline and all of that was on Commercial side, which we see as largely seasonal. Consumer deposits on a spot basis were actually up, reflecting tax Refunds and some seasonality there.

Speaker 5

So, that's the story on the deposits. For the full year in regard to the betas, Relative to what we expected at the beginning of the year, we have increased our betas consistent with the increase in the Fed rate hike forecast. Along the lines of what we saw in the last cycle, maybe a little bit less just because we're working off such high levels. Very quiet as you pointed out, very quiet on the first one hundred basis points or so, but showing up if our rate Forecast is correct, showing up in the 3rd Q4. Got it.

Speaker 7

Thanks. If I could ask One more thing on the loan side. I know you mentioned the higher line utilization on the commercial side. Are you beginning to see CapEx plans drive Loan demand. And then lastly, are you seeing any of the volume coming back from the capital markets back to the bank loan market yet on the commercial side?

Speaker 4

I think the utilization is part of reflects part of the slowdown on the capital market Tied in bonds. Clients continue to be active. So yes, some pickup in And CapEx build in inventory. The other thing we're seeing beyond the utilization change, I think we saw a similar Percentage increase in just new dollars out or sorry, not percentage, but notional amount increase of new DHE commitments out. So some of its utilization, some of its winning clients, utilization driven by capital markets being a bit of disarray together with increased CapEx.

Speaker 5

And higher inventory levels, of course, yes. Yes. Got it.

Speaker 7

Okay, great. Thank you.

Speaker 6

Sure. Our next question is from the line of Scott Sievers with Piper Sandler. Please go ahead.

Speaker 3

Good morning, guys. Thanks for taking my question. So Rob, it was great to see you reiterate the full year 2022 revenue outlook. And I think you sort of addressed this in response The capital markets question previously,

Speaker 8

but I

Speaker 3

was hoping broadly you could just kind of parse the guide between what comes from NII and what comes from fees. I think 90 days or so ago, you guys have been thinking maybe mid single digit all in growth For 2022, if I remember correctly, but just given sort of the change in reporting

Speaker 5

and

Speaker 3

others, etcetera. Just curious to hear your thought.

Speaker 5

Sure, sure. So 9% to 11% total for the full year. Compared to the beginning of the year, net interest income is a bigger component of that because of the rate increases and the higher balances. So we're looking at that to be inside of that 9% to 11% the NII in the high teens. And then on the core fee piece, looking more toward flattish to maybe down low single digits And most of the change there being on the mortgage outlook from the beginning of the year.

Speaker 5

So most of our fee categories are tracking to what we expected for the full year, including capital markets, as I just mentioned, but mortgage were off from what we thought at the beginning of the year because of rates. So Residential and commercial mortgage, we expect it to be down low single digits. We're now looking at maybe down 25% or 30% year over year. So That's where the fee change is largely resident.

Speaker 3

Perfect. And you just captured my second question as well. So thank you. I appreciate it.

Speaker 8

Sure. Yes, sure.

Speaker 6

Our next question is from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.

Speaker 9

Hi. Good morning.

Speaker 5

Good morning, Mike.

Speaker 9

So you're guiding for 9% to 11% revenue growth, 4% to 6% expense growth. So you're guiding now for 500 basis points of positive operating leverage. I'm just curious, Are you tempted to spend some of that and invest more of those that spread? And I relate this, I'm not telling you to do it or not to. I'm just there's always a trade off.

Speaker 9

But I want to tie this back to your CEO letter, Bill, where your first goal was to You've gained share in especially your new markets and your second goal was to improve share with your customers. So I guess the concrete question is, do you have any metrics to say what kind of share you'd like to improve by market And by corporate and consumer customer. And to do that, are you tempted to spend some of that excess of the revenue growth over expense growth? Thanks.

Speaker 4

Thanks for the question, Mike. In short, we don't have We've always been investing in our franchise. So if you think about we talk about our new markets, as I said in my comments, They are largely staffed at this point. And so if I think about our people spend, we're kind of where we need to be. If I think about our Technology spend, we've been going hard at that for a number of years and we're More in the place of what can we actually get done in a sequence timeline than we are about, hey, spend more money.

Speaker 4

So you're not going to see increases against what we expected in that space. So anyway, Short answer to your question is no, we don't need to spend the money and not spending the money in no way detracts from The growth that I think we're capable of.

Speaker 5

Or in other words, we are spending the money on investments and that's part of the guide. Yes.

Speaker 4

That's another way to put it. Yes.

Speaker 9

So it's baked in there. And can you put some numbers around your CEO letter? Like I said, it's your 3 goals gained share By your markets, gain share by customers and technology, at least for your first two goals, where is it shared today and where do you hope to get it to? You have not given that before, but it'd be nice to know, is it bigger than a bread box or what?

Speaker 4

No, it's a fair question. I don't know that you were going to define share by share of C and I loans in a market. I think what we have to do And we're working on Mike is presentation of just progress in underpenetrated markets compared to what we execute In one of our mature markets, and then tracking that for you. I think that's the best metric. So we look at loan balances, we look Fees, we look at percent of fees as a percentage of total revenues.

Speaker 4

We look at calling volume. We look at new clients, All the things you'd expect us to and we need to figure out, and I'll commit to you that we will. We need to put out metrics so you can track it through time. We do it internally.

Speaker 9

And then lastly, as it relates to buybacks, you have the book value regulatory capital Dichotomy here. Which wins out when you think about buybacks?

Speaker 4

Not sure I follow the question.

Speaker 9

9.9 percent CET1 ratio, That's fine. That's good. But your book value went down. That's not as good. Do you still buy back the same amount of stock?

Speaker 9

Do you slow buyback? Do you not buy Next doctor

Speaker 1

of all,

Speaker 9

the ODI impact.

Speaker 4

Yes, yes, yes. So if you're simply asking the question, do we view our available capital based on the 99, the answer to that is yes.

Speaker 9

Okay. And then does that mean you continue to pay some buybacks or How do you think about that?

Operator

Yes. We're going to be

Speaker 4

in the market. It's obviously, I think it's more attractive today to buy back shares than it was Towards the end of the year. So, yes, we're going to be in the market and I don't know what we probably will be centered. Yes.

Speaker 5

No, no, that's right. The answer is it is the regulatory capital that we look at, Mike. And the current pace that we've been on, we expect to continue The average quarterly pace. We were a little bit more this past quarter.

Speaker 9

Got it. Thank you.

Speaker 4

Sure.

Speaker 6

Our next question is from the line of Bill Caracci with Wolfe Research. Please go ahead.

Speaker 8

Thank you. Good morning, Bill and Rob.

Speaker 5

Good morning.

Speaker 8

Following up on your deposit beta expectations being a bit lower this cycle given all the liquidity in the system. You said on the last call that You'd expect to see higher betas if the Fed shrinks its balance sheet dramatically, but that loan growth would be an offset to that. Maybe could you help square those two points for us. And I guess just maybe discuss the risk that the pace the Fed has communicated could lead The higher deposit flight risk.

Operator

So I mean there

Speaker 4

are 2 opposing forces, Right. So when the Fed shrinks its balance sheet, which it will even if they let it run off, they're saying whatever that number is 90,000,000 It's in a month or a quarter, I don't even remember. But it will pull deposits from the system. At the same time, when there is loan growth, It puts deposits back into the system. And the reason for that, if you think about it, it's just leverage on the capital.

Speaker 4

Assume everybody holds 10% on a loan, they borrow from us, they Deposit somewhere else, it collectively builds deposits into the system. Collectively, we think that's going to cause Will cause deposit growth to slow, but we actually think deposit growth is still going to be positive for the system and for us. So again, Fed balance sheet shrinks, but at the same time, we're going to see loan demand. We expect to see loan demand. We have seen loan demand At a pace that would generate deposits.

Speaker 4

So we're not particularly worried about that. Now what will happen, of course, is as the Fed gets rates substantially higher. The betas are going to have to do a big catch up move because all of a sudden it's going to matter. Interest rates are going to get back to a place where people start paying attention again. I don't know what that level is.

Speaker 4

I don't know that we've ever come off of a base of 0 and tried to play catch up. The last time we thought about that, the Fed reversed course, pretty quickly. So we're going to have to see how that plays out. But I think deposits in the system will still be there. We just won't see the same growth we have over the last couple of years.

Speaker 8

Got it. That makes sense. And taking that thought process and going inside your outlook, does that contemplate the possibility of maybe simply letting some of the liquidity that Sitting on today outflow, if necessary rather than paying up to keep it to fund loan growth?

Speaker 4

Well, we haven't had to pay up. I mean, as you see, I think our average cost of funds stays Four basis points. So some percentage of that on the corporate side in particular that will be that looks for direct substitutes From competitors or money market funds on a given day. And we assume and in our forecast, we assume that that will have very high, if not betas of 1. And that's fine.

Speaker 4

That's part of our funding model. It's embedded in our forecast. And we never we don't Consider those necessarily core deposits even though they're core clients, if that makes sense to you.

Speaker 8

Yes. If I can add

Speaker 5

And that's 4 basis points on core deposits. Yes, core borrowing is a little higher.

Speaker 8

Okay. Thank you. That's helpful. If I could ask on CRE, can you talk about the risk that tenants may remain Good credits and continue to abide by their lease obligations through the end of their lease terms, but ultimately not renew because they just don't need as much space.

Speaker 4

Look, I think that's one of our fears. It's I think we're going to see that weakness in office properties flow through over a longer period of time. But and I think by the way, that's Very market specific. So I would tell you, for example, I think in Pittsburgh here, we're going to struggle with that. We don't have Exposure to interestingly, we don't have a lot of exposure here, but practically I think there'll be less people in the buildings in Pittsburgh.

Speaker 4

And I think that's going to be the case in many There are areas around the country. And yes, I think that's going to cause lease rates to drop over time. And yes, I think that's going to impact office properties. We're reserved for that, have been watching that. We pick our clients carefully and at this point, we think Most, if not all of them have the wherewithal to make their way through that.

Speaker 8

That's helpful. Thank you. If I could squeeze in one last one. Bill, You shared in the past a vision of giving consumers the ability to use Zelle at the point of sale for retail payments. Can you update us on Whether that's something that you'd still support and how do you think about the risk of cannibalizing or that that could cannibalize your debit and credit volumes?

Speaker 4

Look, I'm not going to speak on behalf of EWS, the company, Simply because that's a collective decision from the ownership group of EWS. I think everybody's interest is to make Payments easier to make payments, be more fraud resistant. And look, to be able to make some return on payments. We collectively look through all those things against the current rails And as the payment landscape changes, we'll adapt with it. We are going to start using Zelle.

Speaker 4

We and a few of the other ownership banks to allow purchase for services and for small business. So it will get out there into the pea to merchant space, just At this point, not direct competitor to the card rails, for a variety of reasons, but, not yet.

Speaker 8

Understood. That's super helpful. Thank you for taking my questions.

Speaker 5

Sure.

Operator

Next question please.

Speaker 6

Our next question is from the line of Gerald Cassidy from RBC. Please go

Speaker 4

ahead. Thank you. Hi, Bill. Hi, Rob.

Speaker 9

Hi, Raj.

Speaker 10

Can you guys I know you talked about the capital utilization rates going up, possibly customers with capital expenditure. But can you share with us where are they now? And what would you So there to be a normal rate of capital utilization at your organization?

Speaker 5

Yes. And we've talked about this before, Gerard. Right now, we're in the low 50s, up from the high 40s that we saw through the bulk of last year. And normal just whatever normal is, we might expect somewhere in the mid-fifty percent. So we're moving toward that, not there yet.

Speaker 10

And Rob, is there any difference have you discovered yet with the BBVA customer that C9 customer versus a Legacy P&C customer?

Speaker 5

No, it's interesting. On the commercial side, we were talking about that this morning. It's very, very similar in terms of the borrowing trade. So, there really is no difference in terms of the utilization of the lines. They're all up in sort of similar amounts.

Speaker 10

Very good. And then I know you mentioned in your remarks about transferring over some of the available for sale securities. I think it was 20,000,000,000 Into the health of maturity. Would they transfer it over at a discount? And then will that discount accrete into your capital over time?

Speaker 5

Yes. Yes, exactly. And again, it doesn't affect Earnings. It's all going to pull. We balance between the flexibility benefit of For sale versus the AOCI component of or benefit of held to maturity.

Speaker 5

So we'll continue to look at that. But It'll run its course and again doesn't affect earnings.

Speaker 10

Right. Okay. And just lastly, I know you guys When you did the BBVA transaction, you were quite excited about the money transfer business between, I believe it was maybe Mexico and the U. S. Can you share with us any color on how is that going?

Speaker 10

Is it going as well as you expected? Have you been able to expand it?

Speaker 4

We've actually been really happy with it. It has expanded and we're currently looking it's through Several countries in Latin America today, and we're actually looking at expanding that through relationships into other countries there. And I think into Europe, Although I'm not certain about that. It's dependent on correspondent banking relationships, in the receiving countries That are responsible for Know Your Customer, Gerard. But it's a big business.

Speaker 4

We actually white label it for others and we're excited by it. We've It's now mainstream on our consumer apps. And importantly, we're looking at some of that functionality to be tied into some of the things that we're actually doing on the corporate side.

Speaker 10

Great. Thank you, Bill. Appreciate it.

Speaker 8

Yes.

Speaker 6

And there are no further questions. I'll turn the presentation back to the speakers.

Operator

Okay. Well, thank you very much. And if you have any follow-up questions, please feel free to reach out to the Ira team.

Speaker 5

Thanks, everybody. Thanks, folks.

Speaker 6

Thank you. And that does conclude today's conference. You may now disconnect.

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Earnings Conference Call
The PNC Financial Services Group Q1 2022
00:00 / 00:00