The PNC Financial Services Group, Inc. (PNC) Q3 FY2025 Earnings Call Transcript & Summary

Greetings, and welcome to the PNC Financial Services Group Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Bryan Gill. Thank you, Bryan. You may begin.

Well, good morning, and welcome to today's conference call for the PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC and participating on this call are PNC's Chairman and CEO, Bill Demchak; 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 are all available on our corporate website, pnc.com, under Investor Relations. These statements speak only as of October 15, 2025, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Thank you, Bryan, and good morning, everyone. As you've seen, we had an excellent quarter, building on a great year so far. Our results for the third quarter reflect an impressive performance across the entire franchise. We reported net income of $1.8 billion or $4.35 per share. We grew customers, loans and deposits and continue to deepen relationships across our businesses and geographic footprint with positive trends in our legacy and fast-growing expansion markets. Our NII growth trajectory continued as expected, coupled with very strong fee growth and well-controlled expenses. And as a result, we delivered record revenue and PPNR as well as another quarter of positive operating leverage. Credit quality continues to remain strong with a net charge-off ratio of only 22 basis points. While there are obvious potential downside risks to the U.S. economy, our customers remain on solid footing. From a consumer perspective, spending has been remarkably resilient across all segments and corporate clients are expressing cautious optimism about their business outlook. Ultimately, this is driving a sound economy. Looking at our business lines, we continue to execute on our strategic priorities. In retail banking, consumer DDAs grew 2% year-over-year, including 6% growth in the Southwest, driven by strength across our branch and digital channels. Customer activity in the quarter remained robust with record debit card transactions and credit card spend as well as record levels of investment assets in PNC Wealth Management, our newly rebranded brokerage business. We continue to invest in our future growth. And by the end of the year, we will have opened more than 25 new branches. And importantly, we remain on track to complete our 200-plus branch builds by the end of 2029. In C&IB, we saw record noninterest income driven by broad-based performance across fee income categories and pipelines remain strong. Within our asset management business, we continue to see client growth and positive net flows from both legacy and expansion markets with the expansion markets growing at a faster pace. Before I pass it over to Rob, I wanted to say how excited we are about the recent announcement to acquire FirstBank. Kevin Classen and his team have built a premier bank in the Colorado region with a focus on strong customer service and an enviable branch network. Upon closing, this deal will propel PNC to the #1 market share position in retail deposits in branches in Denver. It will also more than triple our branch footprint in Colorado while adding additional presence in Arizona. And finally, as always, I'd like to thank our employees for everything they do for our company. With that, Rob will take you through the quarter. Rob?

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide 4 and is presented on an average basis. For the linked quarter, loans of $326 billion grew $3 billion or 1% Investment securities of $144 billion increased $3 billion or 2%. And our cash balance at the Federal Reserve was $34 billion, an increase of $3 billion. Deposit balances were up $9 billion or 2% and averaged $432 billion and borrowings increased $1 billion to $66 billion. AOCI at September 30 improved $605 million or 13% compared with the prior quarter and was negative $4.1 billion. Our tangible book value of $107.84 per common share increased 4% linked quarter and 11% compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 10.6% and an estimated CET1 ratio inclusive of AOCI of 9.7% at quarter end. We continue to be well positioned with capital flexibility. During the quarter, we returned $1 billion of capital to shareholders, which included $679 million in common dividends and $331 million of share repurchases. And we expect fourth quarter share repurchases to continue to be in the range of $300 million and $400 million. Slide 5 shows our loans in more detail. During the third quarter, we delivered solid loan growth. Balances averaged $326 billion, an increase of $3 billion or 1% compared to the second quarter. Average commercial loans increased $3.4 billion or 2%, driven by growth in the C&I portfolio, partially offset by a decline in commercial real estate loans of $1 billion. Growth in C&I was driven by strong new production, particularly in corporate banking and business credit. And during the third quarter, utilization remained slightly above 50%. Commercial real estate balances declined $1 billion or 3% as we continue to reduce certain exposures. Consumer loans were stable as growth in auto and credit card balances was offset by a decline in residential real estate loans. The total loan yield of 5.76% increased 6 basis points compared with the second quarter. Slide 6 details our investment securities and swap portfolios. During the third quarter, average investment securities increased approximately $3 billion or 2%, driven by purchasing activity late in the previous quarter. Our securities yield was 3.36%, an increase of 10 basis points. And as of September 30, our duration was 3.4 years. Regarding our swaps, active received fixed rate swaps totaled $45 billion on September 30 with a receive rate of 3.64%. And forward starting swaps were $9 billion with a received rate of 4.11%. Importantly, our securities portfolio is well positioned for a steepening yield curve that will support substantial NII growth in 2026. Slide 7 covers our deposit balances in more detail. Average deposits increased $9 billion or 2% during the quarter, driven by particularly strong growth in commercial interest-bearing deposits, which were up 7%. Noninterest-bearing balances of $93 billion were stable and were 21% of total deposits. Total commercial deposits grew approximately $9 billion or 5% linked quarter. The growth was due in part to seasonality, but also reflective of both new and expanded client relationships. Our total rate paid on interest-bearing deposits increased 8 basis points to 2.32% in the third quarter, reflecting the outsized growth in interest-bearing deposits and the resulting change in our deposit mix, along with slightly higher consumer rates paid. Going forward, we anticipate our rate paid on deposits will decline in the fourth quarter because of the full quarter impact of the September Fed rate cut and our expectation for additional cuts in October and December. Turning to Slide 8. We highlight our income statement trends. Comparing the third quarter to the second quarter, total revenue was a record $5.9 billion and was up $254 million or 4%. And noninterest expense of $3.5 billion increased $78 million or 2%, which allowed us to deliver more than 200 basis points of positive operating leverage and record PPNR of $2.5 billion. Provision was $167 million and declined $87 million compared to the second quarter. Our effective tax rate was 20.3%, and third quarter net income was $1.8 billion or $4.35 per diluted share. In the first 9 months of the year compared to the same time last year, we've demonstrated strong momentum across our franchise. Total revenue increased $1 billion or 7%, driven by record net interest income and record fee income. Noninterest expense increased $213 million or 2%, reflecting increased business activity as well as continued investments in technology and branches. And net income grew $638 million, resulting in diluted EPS growth of 17%. Turning to Slide 9. We detail our revenue trends. Third quarter revenue increased $254 million or 4% compared to the prior quarter. Net interest income of $3.6 billion increased $93 million or 3%. The growth reflected the continued benefit of fixed rate asset repricing, loan growth and 1 additional day in the quarter. And our net interest margin was 2.79%, a decline of 1 basis point, reflecting the outsized commercial deposit growth I previously mentioned. Importantly, our expectation is for NIM to continue to grow going forward, and we still expect to exceed 3% during 2026. Noninterest income of $2.3 billion increased $161 million or 8%. Inside of that, fee income increased $175 million or 9% linked quarter, reflecting broad-based growth across categories. Looking at the details. Asset management and brokerage income increased $13 million or 3%, driven by higher equity markets and included positive net flows. Capital Markets and Advisory revenue increased $111 million or 35%, driven by an increase in M&A advisory activity as well as higher underwriting and loan syndication revenue. Card and cash management revenue was stable as seasonally higher credit and debit card activity was offset by lower merchant services. Lending and deposit services revenue increased $18 million or 6% due to increased activity and client growth. Mortgage revenue increased $33 million or 26%, reflecting elevated MSR hedging activity and higher residential mortgage production. And other noninterest income of $198 million included negative Visa derivative fair value adjustments of $35 million, primarily related to Visa's September announcement of a litigation escrow funding. Notably, we continue to see strong momentum across our lines of business and throughout our markets. And year-to-date, noninterest income of $6.3 billion grew $337 million or 6% compared to the same period last year. Turning to Slide 10. Our third quarter expenses were up $78 million or 2% linked quarter. The growth was largely in personnel costs, which increased $81 million or 4% and included higher variable compensation related to increased business activity. Equipment expense increased $22 million or 6%, reflecting higher depreciation related to investments in technology and branches. Importantly, all other categories declined or remained stable. Year-to-date, noninterest expense increased by $213 million or 2%. And as we previously stated, we have a goal to reduce costs by $350 million in 2025 through our continuous improvement program, and we're on track to achieve that goal. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on Slide 11. Overall credit quality remains strong. Nonperforming loans of $2.1 billion were stable linked quarter. Total delinquencies of $1.2 billion declined $70 million or 5% compared with June 30, reflecting lower commercial and consumer delinquencies. Net loan charge-offs were $179 million, down $19 million and represents a net charge-off ratio of 22 basis points. Provision was $167 million, resulting in a slight release of loan reserves, primarily due to an improved outlook for our CRE portfolio, reflecting both lower loss rates and continued runoff. At the end of the third quarter, our allowance for credit losses totaled $5.3 billion or 1.61% of total loans. In summary, PNC reported a solid third quarter. Regarding our view of the overall economy, we're expecting real GDP growth to be below 2% in 2025 and unemployment to peak above 4.5% in mid-2026. We expect the Fed to cut rates 3 consecutive times with a 25 basis point decrease at the October, December and January meetings. Looking at the fourth quarter of 2025 compared to the third quarter of 2025, we expect average loans to be stable to up 1%. Net interest income to be up approximately 1.5%. Fee income to be down approximately 3% due to elevated third quarter capital markets and MSR levels. Other noninterest income to be in the range of $150 million to $200 million. Taking the component pieces of revenue together, we expect total revenue to be stable to down 1%. We expect noninterest expense to be up between 1% and 2%, and we expect fourth quarter net charge-offs to be in the range of $200 million to $225 million. And with that, Bill and I are ready to take your questions.

[Operator Instructions] Our first question today is coming from Scott Siefers from Piper Sandler.

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

Yes. Sure, Scott. So let's start with the last part there first. We do -- as I mentioned in the comments, we do still expect our NIM to continue to expand and hit the 3% and above sometime during 2026. So no change there in terms of the trajectory. The difference in the quarter was the outsized commercial interest-bearing deposit growth. So we grew $9 billion, which was easily the most that we've ever grown commercial interest-bearing deposits in any quarter, particularly in 2025. And even though we kept our rate paid on commercial interest-bearing deposits flat to actually down a basis point in the quarter, it affected our NIM because of the mix change. Commercial interest-bearing deposits, as you know, are priced higher than consumer. So when you put that into the weighted average, that cost us 4 basis points, 4 or 5 basis points on our NIM that would have otherwise been there had we not grown those deposits. And I think it's a good question to make sure you understand what's going on there, but it's also a good point -- good for us to point out that NIM is an outcome, not something that we manage to. So this is a good example. Lots of our commercial clients want to put deposits with us. We can do that in an NII accretive way. It cost us a couple of basis points for NIM, and that's a good thing. So going forward, continue to expect NIM to expand. It's just that outsized growth sort of on an apples-to-apples basis reset of the weighted average.

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

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

Next question is coming from Betsy Graseck from Morgan Stanley.

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

I think you should look at our organic growth success. We're -- particularly in the new markets where we've laid out a path importantly to be able to grow our retail franchise at the pace we grow our C&I franchise. And that's the whole long term when we talk about scale when you have 2 giants gathering up retail share unless we can keep pace, share in C&I doesn't necessarily do us any good. We're on track to do that. We did the FirstBank acquisition because it was kind of a really focused retail gather dominance in a particular state or a couple of markets, opportunity to accelerate what we are doing. But you shouldn't expect that to be the norm. You shouldn't expect us to kind of chase a deal frenzy. We'll look at things should they arise, but we'll be selective as we've always been.

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

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

Next question is coming from John Pancari from Evercore ISI.

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

Yes, sure. Sure, John. Why don't I broaden that out a little bit for NII. So NII for the full year, we're pointing to up 6.5%. As we go into '26, as we said previously, we expect that trajectory to continue and actually increase. PNC on a stand-alone basis, so not including FirstBank. We'll have these numbers for you in January. But PNC Bank on a stand-alone basis in '26, consensus for NII is growth of about $1 billion, and that's -- we see that, and we agree with that. We'll have more for you an update, obviously, in January. But the point is that our NII trajectory is in place. The fixed rate asset repricing is still there going into '26 with momentum.

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

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

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

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

Yes. It hasn't gone down because we had the pickup in the second quarter. It was sustained...

First and the second, and then we've held it, yes.

And we continue to see some solid growth in unfunded commitments.

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

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

Next question today is coming from Ebrahim Poonawala from Bank of America.

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

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

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

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

Yes, that's right...

Resulted, yes.

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

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

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

And all the leading indicators of the credit are positive.

Next question is coming from Chris McGratty from KBW.

Rob, maybe start on Slide 7, the $9 billion of commercial interest-bearing. I'm interested in what, in your opinion, drove the surge this quarter and whether that's you bring in more on the balance sheet, if there's a change in behavior? What's the, I guess, the outlook as well?

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

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

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

Next question is coming from Erika Najarian from UBS.

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

Comfortably, yes.

Comfortably. Okay. Perfect.

Bill suggested me to add the word comfortably. So that is...

Yes, I said -- there seems to be a lot of -- I mean, let's just hit the issue. There seems to be a lot of confusion because NIM went down, totally explained by deposits and then NII felt a little light as we go into our guide because of this issue of when rate cuts are. There's absolutely nothing that has changed on our trajectory of forward NII growth. We will be comfortably above $1 billion on top of this year for '26 number.

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

We got to -- we hit you with 2 things, right? We confused you with deposit growth. So just isolate that for a second. We're getting corporate -- yes, and NIM. So we get corporate deposits in that SOFR minus something, and we put them on deposit at the Fed at SOFR plus something. We have no supplemental leverage issues in our company. So it's just money in the pocket. It hurts our NIM when we do that. But we do that all day long. It's riskless money in our pocket. The NII -- the totality of our NII repricing that occurs because of the way we've positioned the balance sheet has not changed at all. All that's changed is 1 month on our expectations of Fed cuts.

Which actually a little -- just a little bit, but just to complete the story.

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

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

Next question is coming from Gerard Cassidy from RBC Capital Markets.

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

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

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

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

New offers.

Yes.

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

So let's go to Moody's here in a second. There is a strong push out of, I would say, Washington broadly to simplify the regulatory process and focus it on things that are material risks. Inside of that, you saw the MRA proposal that I think if it does nothing else, it will get rid of all the crazy ancillary work we do on minor MRAs. If it's -- if you're not in the bank, you don't really understand this. But if we get an MRA, and by the way, we get a lot of them for kind of like silly things. You have to -- you get the MRA, you negotiate it with the regulators. That's a team of people, then you write your response to how you're going to fix the MRA and then you assign people who are responsible for the MRA and then you do set up committees and then you spend 1,000 hours like fixing some in the MRA process where you could actually fix the issue that they were concerned about in 10 hours. So if it actually comes out the way they wrote their proposal, it's a massive work set decline inside of our company, not because we're not going to fix issues, but rather that we're going to just fix issues as opposed to talk about them for months. On capital, it will be kind of interesting. Moody's had been the binding constraint. But remember, Moody's triggers their ratings off of risk-weighted assets also. So when Basel III end game comes out, depending on how they calculate risk-weighted assets, right, that even if you're supposed to hold, in our example, this -- we're sitting at 10% to 10.5%, it could well be that our capital ratio spikes because risk-weighted assets go down because operating risk and/or investment-grade credit is treated differently.

So started new definition.

So I don't -- I think it's way too early to kind of assume who or what is the binding constraint until we actually see what comes out of Basel III end game because the expectation is in Basel III, we're going to drop risk-weighted assets pretty -- potentially pretty substantially.

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

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

[Operator Instructions] Our next question is coming from Ken Usdin from Autonomous Research.

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

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

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

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

I wouldn't mind using some of it for some...

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

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

And inflect at the beginning of '26 at the earlier, and can, too. I mean it's accretive. So we're sitting here, deposit at the Fed, however, making money.

Absolutely.

Next question is coming from Mike Mayo from Wells Fargo.

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

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

And the follow-up.

It just -- it's -- I mean, you can't even imagine how bad it is unless you actually sit in a bank. And if they actually have to clean it up sometimes...

No, we all -- that's our job is to try to quantify these things. But just as far as how much of your time it takes, if you go back, say, 20 years ago, how much time you spent on these things and then after the financial crisis, how much time you spent. And then 2 years ago, I think peak regulation, how much time you spent and now kind of where you are today, like how would you thought something like that?

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

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

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

Next question is coming from Matt O'Connor from Deutsche Bank.

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

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

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

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

And it is happening.

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

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

Yes. It's -- we're actually -- part of it is we're building on what we've historically done. I think we're doing like twice or 3x the pace of what we did a year before. So we're having to scale our internal group that actually does that. Site selection takes time. And then the actual builds, if we have 150 builds going on right now, I got a construction manager at each one of those sites. So we got to scale all of that. But you're right, as we kind of build this skill set, which we haven't exercised for a bunch of years, we could accelerate it if we wanted to. And the other thing, people are like, why are you building branches? We still have branch -- probably more branches in the country than we necessarily need in the long term. PNC doesn't necessarily have the branches in the markets, we need saturation. And importantly, A lot of the banks that you might say, hey, why don't you buy this or why don't you buy that? Their branches are in a state that we might as well just build them from scratch anyway. They're in the wrong place to roll. They don't really have real retail customer relationships. A lot of its brokered and its real estate. So that's not going to be the answer to how we fill this in.

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

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

Thanks, everybody.

Thank you.

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