The PNC Financial Services Group, Inc. (PNC) Earnings Call Transcript & Summary

Good morning again. Next up, we have PNC Financial Services Group. PNC is one of the largest diversified financial services institution in the U.S. Assets, $554 billion. PNC has a presence in 48 of the largest U.S. markets retail branch network spread across multiple regions of the U.S. and also 4 strategic offices in Canada -- international offices in Canada, Germany, China and the U.K. The company's business segments are broken down between Retail Banking, Corporate & Institutional Banking and Asset Management. Most know PNC announced the acquisition of BBVA in November of 2020, closed the deal on June 1, 2021, and completed the conversion less than a month ago so pretty impressive. With us today, Rob Reilly, EVP and CFO, a position he's held since 2013. Prior to being named in his current role, Rob served as Head of Asset Management Group, where he was responsible for PNC's wealth management, institutional investments and ultra high net worth business segments. He joined PNC back in 1987 and has held multiple lines, numerous management positions across the company. So thank you, Rob.

Yes. Thanks for that introduction.

Much like we've seen...

Actually I want to cover all of 1987. I ended up -- yes. Yes.

No. In high school, class treasurer or president. I can't remember. So we'll get things started and then okay.

I'll be with you.

Thanks. So let's just start with loan growth. I want to ask about what you're seeing with respect to the green shoots you identified on the third quarter call. Have you heard from clients in the past few weeks? And then are you seeing anything incrementally positive with supply chain issues and some of the labor shortages that we've heard about?

Yes, sure. Well, we are seeing a continuation of what we saw sort of in the late third quarter there in terms of some increase in utilization, mostly on the commercial side and the PNC legacy. We had a lot of moving parts, you'll recall in the third quarter, in terms of some BBVA USA runoff, some PPP pay down, but that core PNC legacy, we did grow. Not a lot, but moving in that direction. And most of that came through our asset-based group, in commercial, secured lending and some corporate -- general corporate loans, which is encouraging. I mean we're still at historical low utilization levels, but we're up a little bit off of that. And that is continuing. And on the consumer side, the consumer is obviously flush with cash, but we did see some nice growth in residential mortgages as you would expect, and the industry saw and that's continuing as well. The supply chain clearly is affecting loan demand. I think what's different now is the economists and the people who actually are moving the freight around or saying it's improving. But if you talk to our customers, largely a lot of them are middle market, general-type companies. They talk about 2 things, still not being able to get inventory and of course, labor. So I don't think it's worked its way all the way down yet, but these issues are persisting, albeit maybe improving a bit.

Okay. And maybe a couple of questions on the BBVA USA markets. Are you seeing any contribution to loan growth from these new geographies? And how much of that is helping your loan growth outlook?

Yes. I think -- so you mentioned it in the opening there. So we're just under a year in terms of having announced the deal. Then we closed the acquisition in June and then we just converted a couple of weeks ago. We saw some post-conversion work to do, but we're getting to the fun part now in terms of being able to bring all of PNC across all of the markets, both in terms of the existing BBVA USA client base as well as the prospects. So we're in the Southwest United States, as you know, which has great growth. So we've got a lot of activity going on. And we've had a lot of activity going on. The conversion is very helpful because we're able to bring it all seamlessly. It might take a little bit in terms of seeing the accretive nature of the loan growth, mostly because we're not leading with credit. We didn't do that with the RBC acquisition in 2012. We didn't do that with the organic offices. Most of our efforts in these new markets, so to speak, in the last handful of years, 50% of it's been noninterest income. And that's our plan for here, too. So the good news is we're staffed up. We're in place. We're converted. We can access the products and services. The activity -- the calling activity is very high. The teams are excited. The teams are a good mix of former BBVA, the relationship managers, in-market hires and then some PNC legacy folks as well, which is what we've done in all of our new markets. So we're excited about it. And we'll definitely see that addition to growth. But it might take a little bit of time.

And then one more on BBVA. You said you expect about $2 billion of runoff on the BBVA loan portfolio and then another $3 billion over the next couple of years.

Yes, $2 billion in the fourth quarter. Correct.

Yes. Is that still your expectation?

That is still our expectation. Yes. And that's in line with what our assumptions were in terms of the deal. It falls into 3 buckets in terms of the runoff. One is just where we have overlapped exposures where we were both in a particular deal, and we rightsize to a single entity. Second, we have had the opportunity to move some nonperformers off of the balance sheet, which in terms of our credit profile and risk return bucket, it's outside of that. And then third, there are some portfolios that the credit is perfectly fine, but long term probably doesn't fit our strategy. So that's why the timing will come through. But as far as runoff goes, the $2 billion in the fourth quarter, as far as I'm concerned in 2022, they're not BBVA USA loans anymore, they're PNC loans. So whatever occurs, it's PNC.

And then on the call, you mentioned you put about $5 billion, $5.5 billion of liquidity into forward-settling securities here in the fourth quarter.

Yes. Right.

Given where the 10 year's traded over the last month or so, have you been any more active in terms of the redeployment of [ liquidity in the securities ]?

Yes, we have. And we've talked about this on the call. Back in the beginning of '21, way back in the beginning of the year, we said, hey, we needed to recognize that the elevated liquidity that's on our balance sheet is going to be here for some time, even with loan growth. So we made the decision to go from a rule of thumb, historically, where securities balances were 20% of our earning assets to increase that range to 25% to 30%. And we got off to a pretty good start. And then of course, we hit the midyear where the 10-year and the rates dipped to the point where it just didn't make a whole lot of sense. So we hit the pause button, so to speak. Beginning with the third -- well, actually guys, the fourth week of September, rates started moving back to where they were in the first half. And as a result, we're adding to our securities portfolio. And I'm comfortable that we'll be in that 25% to 30% range at the end of the year.

Great. And then kind of putting this all together, what's the opportunity for net interest income growth, as you think about loan growth, the securities redeployment in the -- from the excess liquidity.

Yes. Well, in the short term, our guidance for the fourth quarter is up modestly, which we're affirming. Longer term, I think it's fairly substantial. You've got the plus of the rising rate environment. You've got securities balances that will be higher. And then, of course, loan growth can contribute to that, too. So I think the NII lift -- now the timing of which could get a little bit tricky, but I think certainly in the midterm, sort of estimates, pretty good.

And taking all this into consideration, has the net interest margin bottomed in your view?

Yes, I think so. We called the bottom, which we don't usually do that. We called the bottom back in the first quarter -- on the first quarter call, it was at 2.26% and so far, that was the bottom. We haven't got a whole lot of lift up off the bottom. But -- I got to acknowledge that, but I don't see a lot of downward pressure on it.

Great. I'll stop now to see if there's any questions from the audience. [ John ]?

Thanks, Rob. Just on that topic. The 25% to 30% in terms of investing securities. Is that kind of just a medium-term destination? What will drive whether that goes up higher over time? And the rate sensitivity came down a little bit when your 10-Q came out. Is that just the fact that you put some [ monthly check ]?

Yes to the second question. The first question, we'll see. The whole point is like all banks, we're running with a lot of Fed balances even after writing a multibillion-dollar check that we sent to [ Spain ], our Fed balances are still north of $75 billion at the end of the quarter. And we think that's going to stick around for a while even with loan growth that I had mentioned. So in the short term, we'll move into that 25% to 30%, and then we'll continue to assess. The forecasters are right, and we do see an attractive rate increase, then we'll put more money to work. Hey, [ Mike ].

So in case you missed the rest of this conference, every bank has great technology.

Yes. Right. Right. You and I were just talking about that. Yes.

Yes, we were. But I mean you did close -- this is the fastest announcement to conversion of a large bank merger in history. I'm sure there's some small ones somewhere, but as far as big deals, that's evidence. But can you give us any other concrete metrics why PNC's technology is better than peer? Like, I don't know, you have what, 300 apps? Apps per asset? Or a number of data centers?

Well, we always -- I told you and I will hold you to that, and I think the industry is probably going that way. But you're absolutely right. As far as I can tell, in terms of when you ask any bank how is their technology, they all say we're good, we got it covered, we're putting in all the things that we need to put in, which is probably true. But it's hard to differentiate in terms of where banks are. So it is good for us when we get a moment to prove it, and you just mentioned it. The ability to convert a $100-billion bank in 4 months, you have to have to have the technology. Nobody has ever been able to do that. We did coin the phrase -- Bill Demchak takes them and -- if he sees the offer shift -- lift and shift, which some other folks have used but that started with us. And I think you can see the tangible results there. The other example that I'd point to is the low cash mode overdraft technology that we put into our clients in, back in April where we announced it, which is a great example of an industry issue, overdraft, and then how are you going to address it. And we addressed it with technology. Other banks are addressing it in other ways. So I just think you have to wait for those kind of moments to show up in terms of where the real proof point is where technology is the lead and being applied as opposed to being built or talked about. I thought you were leaving the room.

I know it's been Siberia here.

Yes. Yes.

But just to follow up on serving the underserved banking community. With your access to the BBVA client base in the Southwestern United States, that could be very exciting. Could you elaborate on that?

Sure. Yes, sure. We're very excited about these new markets, and I'm sure we'll get into that. Like I said, this is the fun part now. Not that negotiating the deal, closing the deal and converting weren't fun, but this is a really fun part in terms of where we get to go into a wide swath of the United States with all of our products and services, particularly in the Southwest, which has all kinds of different demographics than our legacy. That's the fun part in bringing our model. So I see a lot of opportunity in terms of the underserved, in terms of the digital capabilities, the delivery that goes beyond our physical branches, even though we're going to have those. And then just as important in terms of our own commitments through our foundation in terms of being able to support those communities. Our model is a main street model. We live in the communities that we serve. And that's fully going to apply in terms now through the Southwest. So we're excited about it.

Could you give any anecdotes to elaborate on that experience?

Well, I think -- I just think if you know the bank and you know our history, we've been very active in terms of the communities across the board, including lower income segments. So we're bringing -- we have a very good reputation in that regard, and we're bringing that reputation and that capability to these new markets. We're excited about it.

Rob, you mentioned on the loan growth side that supply chain issues are impacting the commercial side on that demand. If that persists, if we assume that, that's going to be the case for a little bit here, where do you see commercial growth strengthening that can begin to outpace that? Do you have an opportunity perhaps to get more competitive on pricing or some type of push on that front on the commercial side to drive growth in the face of the tough supply chain issues?

Yes. I don't think so. We've been pretty steady in terms of our credit risk appetite, and that's worked well. What we've done and what we did, 2021 is a great example of it. When the loan growth isn't there, we've got a lot of other businesses to do. So it's 42%, 43% of our revenue coming from noninterest income, there's lots to do there. So we don't need to push it. We are, though, I think, particularly well positioned when loan growth does resume just in terms of the mix and in terms of the geographies that we're in. So when that happens, I do think we'll do better than most. But it's not something that we need to force and go outside of our credit -- our well-honed credit approach.

So just -- it's Betsy. So 2 questions. One, on your statement around part of the reason why loans had shrunk in 3Q was a function of nonperformers exiting the USA...

It's BBVA USA. Yes.

Yes, exactly. So could you just give us a sense as to how much of that portfolio you're finished with? Like would you -- 100% of what you wanted to sell, they're gone?

Well, I wouldn't say 100%. We took a pretty good swing at it there. And that would probably be the majority of it. The NPL component of it, like I mentioned, there's 3 buckets. So there's the overlap, the NPLs and then just sort of the credit is fine, but long term, it's probably not a match. I would say in the overlap, things are just estimates, maybe 50% of the way through because you tend to -- if the credit's fine, you tend to wait for a maturity or something along those lines. The NPL is a little bit more than that. And then that third bucket, that will take some time. But I don't think you need to worry about runoff going into 2022. I think in terms of what we're doing, what's occurred, because that's the real question. How much of a headwind are we going to have in 2022. The remaining -- when we get into next year, the remaining runoff will be small and spread out over numerous years.

Okay. So expect a little in 4Q, which is in your guide and then...

A little in 4Q, that's right. That's right.

Okay. LIBOR transition is happening. I mean how much does that matter or come into this? And is there an opportunity, in fact, for C&I lending to be up a little bit because CLO bid might be weak in the first half year?

I don't know. Yes, it's a good question. We're going to see. I mean in terms of operationally, we're in great shape. So it's been well managed. Everything is moving quickly to SOFR [indiscernible] rate, which seems to be the leader in the race in terms of a substitute for LIBOR. So that's good. In terms of where maybe the transition relate -- results in some lower interest charges that, that might actually spur some demand, that remains to be seen. But I don't think it will be material.

Okay. And then just lastly, in the new markets, I would think one of the opportunities is the advisory business that you've got, the Harris Williams piece of the business. Could you help us understand the opportunity there for that, not only for the fee line, but also for picking up incremental borrowers?

Yes. That's a great question. And it hits the heart of one of the great aspects of this deal, which is the fee income. So Harris Williams, this is our merger and advisory business, had a great record third quarter and they've been strong all year. And that's likely the pipelines are strong. We say every quarter, we don't think we can continue this because the numbers are so -- the growth is so much, but it continues to continue. So we'll see. I mean in Harris Williams specifically, it's a great example of a product and a service that these new markets can now bring into the calling effort. And it opens doors, it opens the conversation. So for the former BBVA USA commercial RMs, they didn't have that kind of product to service. Now they can say, hey, we'd like to introduce you to our leading M&A advisory service. Let's get that discussion. And I used to -- I grew up in corporate banking and some things have changed, but a lot of things haven't changed. Every principle wants to know what their business is worth. That hasn't changed. So we can bring incredible conversations in regard to that. And the BBVA USA noninterest income to total revenue was in the 20s. And the whole goal is to bring that up into the 40s, that we have. And we know how to do it. And Harris Williams is one component of it. It's not all. Within corporate services, treasury management, it's probably even bigger of an opportunity in regard to the size and the application. And in addition to that, of course, wealth management and the consumer services. So the fee component of this in terms of being able to do that into this franchise is a fundamental principle of why this deal is so attractive to us.

[ Chris ]?

All right. Yes. PNC kind of pioneered the concept that we've heard a lot of regional banks talk about in Kansas City and in Dallas. I believe you put down 3 branches in each market. And I think it was 2018 or '19. It was definitely prepandemic. But so you've got some time under your belt now and the concept is you only need a couple of branches and support with the online. And what are the lessons learned from that? And is 3 enough? Or is it 20? Or how much traction has it gotten?

Yes, sure. I thought that he was going to add on to your question there. We're going to take them one at a time. Yes, yes. Well, first, thank you for acknowledging that we pioneered it. Not everybody remembers that. But it's part of our evolution that applies to the BBVA USA opportunity. What happened in 2012 when we bought the Royal Bank of Canada Southeast U.S. operations, we went into a new part of the country, and we weren't really sure how it was going to go in terms of our receptivity. I mean we knew we would do well over the long term. But we didn't know how it was going to go. And what happened was the receptivity to our brand and our products and services was much stronger, much faster than what we expected, which was good news. It validated our model. The regional president's model. It validated our approach. So we said back in 2015, gee, if it works in the Southeast, maybe it can work on an organic basis in the other markets. So let's give it a try. So we selected in that first vintage, there's been several vintages since, Dallas, Kansas City, Minneapolis to begin a corporate banking effort that then was followed by a retail approach. There was this thinly dense solution centers, which is a modern version for branch -- modern name for branch, specifically and tactically spread out in a way that there was no more than a 20-minute drive between them to sort of see where we're going to go. And there was a big digital play to that, too, because this was prepandemic, digital offerings in terms of savings accounts were all the rage. And we wanted to at the time, we were talking about this recently, we were concerned we weren't going to have enough deposits to fund our loans. So we wanted to get some deposits. Turned out we've got a whole lot more deposits later on in another way, but that was the thinking. And we've learned a lot. One is the receptivity to our brand held in these places, which then incented us to keep that vintage -- the next vintage going, which we've done in subsequent years with cities like Dallas -- or I'm sorry, Denver, Portland, Seattle, Boston, were up and running. But I'd say, I think in terms of the spirit of your question is the physical branches still matter, more than probably what the experiment was going to imply. Where we have a combination of the branch and the digital offering, the production is much higher than either or. So I think there's real validity to a thinner, less dense, but I don't think it's quite to the extent that a lot of people thought going in. That could change. But if you talk to our folks in our retail segment, these solution centers are very, very active. There's a lot of traffic, it's -- pandemic aside, and they want to stick with the plan, which we'll do.

Rob, a 2-part question as well as an elaborate answer like you just gave to the last question. All right. So your business mix skews towards commercial. Prior to the acquisition opportunity you talked wanting to organically and it's just about -- I guess, will you get back to that kind of as a goal long term? And then you've got a fair amount of excess capital, a couple of banks this week have talked about bolt-on acquisition opportunities looking more attractive than buybacks at current valuations. So I guess could you combine both of those questions?

Yes, sure. So -- I don't know if I can combine them because they are 2 different questions. But I can give you an answer to both. I think the -- on the first part, you're right. Our loan mix skews commercial. We're about 65-35 commercial consumer, which we've been for some time. And BBVA USA was similar. So we add them in, but doesn't change the mix a whole lot. And we did say, and we continue to say, ideally through time, we'd like to see it sort of not necessarily 50-50, but a little bit more balanced. One, in terms of just sort of the obvious risk-benefits in terms of hedges, but also to recognize the opportunity that we have on the consumer side as we build our consumer lending products. So that's still valid. The one way though we don't want to get there is by slowing down what we're really good at. So we don't want to say, hey, we went with 50-50, all you have to do is hold off on growing corporate loans until the consumer. We don't want to do that. So it might take a little bit longer, but we've got a lot of good momentum in the consumer lending products in terms of our sophistication, in terms of the offers. Right now, there's not a whole lot of consumer demand outside of residential mortgages that I talked about. But I do see, over the long term, certainly over a 5-year period looking out, I see that mix going more consumer -- ending up more consumer.

[ Could we get that at this limit ]?

You could do. Yes, you could. I don't know. I mean sometimes we get that question, would you -- one way to fix it really fast would be to buy a big consumer shop. The issue that we have with that is the consumer shops that would be for sale are usually broken, and we don't necessarily know how to fix broken shops. We're not a fix-broken-corporate-shop commercial shop. So we don't really know the consumer in terms of just where we are in terms of that evolution. So I don't think that would be as appealing to us. And when you take a look at our customer base, our consumer clients, which now are going to be 10 million plus, we're still underrepresented. They're inclined to want to borrow from us and kind of want to use our services. We have a great organic opportunity to execute along those lines. So it's not like we don't have a path. The -- on the capital front, we got excess capital. I don't think -- one of the questions, [ Terry ], I know you had asked earlier was -- is a big deal in our imminent future, and I don't think so. We're focused on converting. And after converting BBVA USA, we're focused on the next step following that conversion. And there's some regulatory questions in terms of what would be allowed and approved. So we're not in a big hurry in that regard. But we have made a number of acquisitions, bolt-on acquisitions within -- principally in fintech kind of space, largely in our treasury management business, and we'll continue to do that. You didn't ask it, but there's someone who will ask it in terms of our share buyback, how do we feel about that. We have got a program in place. I think most of you know us pretty well. Our program is -- there's a portion of our buyback that is autopilot and buy only in the market every day. And then there's another portion that's discretionary. And when the price is lower, we buy more and when the price is higher, we buy less. Price has been pretty good lately. So we bought a little bit less. We're north of 2x booked, obviously, like a lot of banks are. So you tend to buy a little bit less there than the -- and sort of the math in terms of an acquisition versus buying those shares becomes a little closer. So we're looking at all that.

[ The difficult ] tax rate, the impact from the [indiscernible].

Yes. No, I don't think so, Betsy. The question was -- Betsy doesn't need a microphone. So the -- I'll repeat the question. Do we worry about this new excise tax on -- that's proposed on share repurchases and does that change the game? At it's currently proposed 1% level, not really. I think though the bigger issue is it opens a new portal and a new door. So if you set that precedent then you do open yourself up to maybe something of a substantially higher rate that's how taxes evolves. You're break into some new territory and then a higher rate in year 5 that does become problematic or at least changes the equation. But in the short term, it's not that material. Though I should be careful saying that because somebody in the IRS has something to say, well, we'll make it material.

Just had a question. You were just talking about the...

Not that material relative to what we would buy back. Yes.

Sorry. You're just talking about using the capital for bolt-on in the treasury management sector for -- using fintechs. And we've heard a lot about fintech partnerships and we even enumerated here yesterday. So I just wanted to ask, where are you guys targeting on that? And I also wanted to bring up BBVA Open had their own -- they had 2 fintechs, Azlo and Simple, but they were shut down postacquisition. I kind of wanted to talk about how you guys are feeling about breaking into that space. It's kind of a little bit differing from how other banks seem to be partnering and so I just wonder.

Yes. Well, that's a broad subject. I think you break it down -- or at least the way I think about it, you can break it down in terms of the commercial applications and the consumer application. On the commercial applications, most of what we do is through our treasury management area, which is the country's leading provider. That's third party. That's not me saying that. Big business for us, great application into our customer base. And probably actually -- this wasn't your question, probably the single biggest opportunity you have within the BBVA franchise. It's a big business for us. It's steady Eddie business. We're the industry leader in it. So we invest pretty heavily on that. And naturally, fintech aspects are part of that territory. I think on the consumer side, which is sort of what you were talking about, our philosophy is much more continue the digital base on the PNC brand. So we're investing in it, but it's coming through PNC rather than some partner that's going to do their own sort of thing on the side, and then we're going to let them sort of grow. So I think the fundamental change is we're doing it, but we're doing it through the PNC side.

Can you give us a bit more color on the emergence of charge-offs and what you're expecting going forward?

Well, they got to go up. I mean eventually, I don't know if any time soon, but our charge-offs, we were just talking about that this morning. Our charge-offs in the third quarter, our total charge-offs on roughly a $300 million portfolio was $80 million, which percentage basis is about as low as you go. So I don't think it can go much lower. But I don't see that set. Credit's very strong for all the reasons that you read about. Corporates are generally doing well, they've got a lot of cash, and the consumer may be in the best shape from a credit perspective in our lives. I don't know what do you think, Terry?

It sure feels like it. That's been the theme this week.

Yes. Although somebody -- I heard a pretty good line last week where they said something. They said there's a reason why they call consumers, consumers because they consume. So we'll catch up. [ Apologies for that. I apologize ]. [indiscernible] threw out the battery. You probably haven't heard anything that I said for the last -- yes. Yes, yes. No, it might. This is not us. This is not us. This is Terry's show.

No, no.

All right. So we've got a question in the back there -- a question on front.

Question about capital capacity and in light of the potential regulatory leadership changes.

Go ahead.

What's the preamble on [indiscernible] growth aspect [indiscernible]. Could you -- now that you're using the countercyclical [ effort ], which has been used by other foreign central banks. And that stock has [ talked about it ] in light of the elevated asset prices. And I think [indiscernible] has had [ source ]. He used them [ countercyclically ]. So number one, separate question, do you think if we do get these leadership changes and she's going to end up either at a supervision or has that...

10-year view. Yes, correct.

Are we going to get higher capital requirements for the banking industry separate? And two, what do you think about the use of the kind of cyclical capital effort? And I'm guessing that your constraint is more CET1 [ rather] [indiscernible]. Does that change your capital [ excess ]?

Yes. I -- it's a good question. I'll just give you my view. Is it possible that when the regulatory change occurs, is it a group of folks that are more inclined to have banks hold even more capital under the current construct, and that's clearly possible. I think the way that we think about it, and it's sort of bringing back some memories from the days when this is all coming forward, I think what's important to PNC, whatever it is, we can manage it and we have good businesses. I would just lobby if we got to that place, that it's not the one size, fits all, which is what -- remember we went through that. So this idea of tailoring, whether you agree with it or not agree with it, I think is intellectually valid in the sense that all banks aren't created equal. And the capital that you need to hold isn't some simple percentage no matter what you do. So I'm hopeful whatever occurs that, that common sense approach prevails. And if that's the case, PNC will do better than most because as you know, we stress among the best.

Let me interject. I think -- [indiscernible] also becomes part -- I mean, she's part of the triumvirate right now. She's going to do something to even the playing field between the [indiscernible] would actually go away. Was there...

Yes. Right. I would hope not. I think -- I mean and this is all speculation, but I think everybody sees the logic behind tailoring. And we're not in a place right now where everybody is really mad at the banks. Back in the postcrisis, everybody was really mad at this thing. And the banks didn't have the capital. So I do think, hopefully, it's a little less heated when we have those types of discussions then a little bit more thoughtful, particularly in the cases of where we've made sort of intellectual progress along the way. My view.

And then the second question does countercyclical offer start to put more constraints on your CET1 versus...

I think it would on the margin. I mean I think I -- we'll have to go through the math, but our constraints on CET1 not to sell by the nature of the business growing. So I don't see where that slips even with a countercyclical buffer. Go ahead.

Rob, this year, you mentioned -- you talked about the strong fees and that led to some incentive-based comp increase, right, which is doing great. And then every bank, including you guys have talked a little bit about inflationary pressure. So I'm just wondering if you could talk about where you're seeing that? And also like where is the CIP program in kind of its evolution? And how much can you continue to use that as an offset to just whatever expense that's happening.

Yes, yes. No, great question. So we're seeing the pressures that everybody else is seeing, the most the most notable being that we raised, we decided to raise our minimum wage rate from $15 to $18, and are starting now. So we're definitely seeing that. And I think that will continue. In regard to sort of the fee businesses, having some higher expenses, we'll do that all day long. Like that's just -- those are good expenses. So I think -- so those are sort of 2 separate points. I think we'll see that wage inflation. I think everybody has to get their arms and heads around that. But the CIP program for us will stay in place. We've been averaging about $300 million or so in terms of savings that we budget every year across the bank that offsets investments that keeps our total expense growth in check or manageable. And we'll do that. We'll continue to do that. So that's one of the things with scale. So when you're talking about $11 billion, $12 billion a year kind of spend, there's always efficiencies to be had. We were sort of running in that 3% range. And I think that will be available to us. And in fact, we'll manage that.

I just had a follow-up to that. You're expanding to these new markets, you want to be a national bank where it matters. And you're going to be hiring a lot of people at a time when wage pressures are going up. So how does the increase in wage pressures influence your strategic plan and your budgeting. It can't be any better than what you had envisioned a year ago.

No. No, it's not better. But I would say most of the pressure that we're seeing is more on the lower end. So when you get into some of the commercial or higher paid jobs, and I think quite -- so it's not uniform. I will say though, one of the things -- and I'm glad you asked this, Mike. One of the things that we discovered also in the RBC deal was we became an employer of choice. We're taking a lot of inbound in terms of people who want to work for us. So we're not struggling. We're not struggling to hire. And in fact, that's why we're largely staffed up now. So I don't see that issue. It is an issue across the board. It's not as pressing as some of the lower end or lower compensated jobs at the moment.

And Rob, you talked a lot about the tailwinds coming from BBVA. Just to be clear, next year, do you feel like PNC can deliver positive operating leverage?

Here we go. Here we go. Yes, I do. I do. I mean we haven't -- like you've heard through this conference, we haven't completed our budgeting by definition, but I don't have specific guidance for you. There's a lot of the year still to play out. But positive operating leverage is something that is important to us. It's part of our objectives in terms of how we run the bank. We've been very successful in terms of delivering it over a multiple year period and the full expectation is that we'll do that in 2022.

I mean do you think of that as certainly we're going to get that operating leverage, whoever's not going [indiscernible] or you sort of treat -- rates don't [indiscernible]...

Yes. Yes. No, I mean, we'll lay it down in terms of our objectives, and we'll go for it and using our assumption to manage through that. We'll stop if it's stupid. We won't do something stupid or short -- or if some variable that you can't see shows up, we're not going to -- we're not locked in our brains, we'll adjust if we have to, but we would do that very reluctantly, and that would be off plan.

Maybe one last question. The $900 million of cost savings from BBVA, what needs to happen for that to be in the full run rate January 7 of next year? Are you there?

Yes, we're there. What has to happen is we need to make all the decisions that equate to those. And that's part of the -- in large part related to the onetime expenses that we have that we've just either have completed or will complete here in the fourth quarter. So the idea is January start -- beginning in January, seasonality aside, so pay attention to my guidance when I provide it to you in terms of the increment, but we will achieve the full -- that's been decided. We -- that's locked in, we'll achieve those full $900 million of savings.

Less than a minute. I just want to thank PNC.