Greetings, and welcome to The PNC Financial Services Group Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bryan Gill. Thank you, Bryan, you may begin.

Well, good morning. 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, 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 invest relations. These statements speak only as of April 16, 2024, 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 a strong second quarter, and we generated $1.5 billion in net income, or $3.39 diluted earnings per share. Our results included a gain on a portion of our Visa Class B shares, which was substantially offset by other items in the quarter, including a securities repositioning. Rob is going to provide more details on that Visa gain financial results and outlook in a second, but I'll highlight a few items. First off, net interest income has moved past its trough, and both NII and NIM grew in the quarter. And by the way, this would have occurred independent of the $10 million impact that we got from the securities repositioning. Importantly, we are on a growth trajectory towards expected record NII in 2025. We continue to add new customers and see strong business momentum across our franchise, particularly in the new and expansion markets. [DDA] (ph) growth accelerated in our branches and we continue to add new corporate and commercial banking clients above historical rates. In our retail business, we launched our first new credit card in several years, PNC Cash Unlimited, a highly competitive card that offers 2% back on all purchases. We plan to launch several new cards in the months and year ahead. Average deposits held relatively flat to the first quarter levels, a little bit ahead of our expectations. And our expenses remained well controlled and we generated positive operating leverage during the second quarter. Rob is going to touch on this in a minute, but we have increased our continuous improvement program target for 2024 as expense discipline remains a top priority. The credit environment continues to play out as we have expected, including an increase in charge-offs within the CRE office portfolio, where we remain adequately reserved. Outside of CRE office, credit quality remains relatively stable. Finally, we further strengthen our capital levels during the quarter. Our strong balance sheet allows us to continue supporting our customers and communities, investing in our business and people, and delivering returns for shareholders. Our financial strength and stability are also reflected in the latest results from the Fed stress test in which we maintained our stress capital buffer at the regulatory minimum of 2.5% and importantly for the second year in a row, PNC has had the lowest start to trough capital depletion in our peer group, further demonstrating our best-in-class resiliency. With this in mind, our board recently approved an increase in our quarterly stock dividend by $0.05. In summary, we delivered strong results in the second quarter and are well positioned to drive further growth and expansion into 2025 and beyond. Before I turn it over to Rob, as always, I just want to thank our employees for everything they do for our company and our customers. And with that, I'll turn it over to Rob to 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 linked quarter basis. Loans of $320 billion were stable. Investment securities increased $6 billion or 4%. And our cash balances at the Federal Reserve were $41 billion, a decrease of $7 billion or 15%, primarily reflecting the deployment of cash into higher-yielding securities. Deposit balances averaged $417 billion, a decline of $3 billion or less than 1% due to a seasonal decline in corporate balances. Borrowed funds increased $2 billion or 2% and were 15% of total liabilities. At quarter end, AOCI was negative $7.4 billion and improved $600 million compared with March 31st. Our tangible book value increased $89.12 per common share, a 4% increased linked quarter, and a 15% increase compared to the same period a year ago. We remain well capitalized and our estimated CET1 ratio increased to 10.2% as of June 30th. Regarding the Basel III end-game, we expect the inclusion of AOCI in the final rule and our CET1 ratio with the impact of AOCI would be 8.7%. And while we recognize the likelihood of changes to certain other aspects of the Basel III end-game NPR, under the currently proposed capital rules, our estimated fully phased-in expanded risk-based CET1 ratio would be approximately 8.4%. We continue to be well positioned with capital flexibility. We returned roughly $700 million of capital to shareholders during the quarter, which included $600 million in common dividends and $100 million of share repurchases. And as Bill just mentioned, our board recently approved a $0.05 increase to our quarterly cash dividend on common stock, raising the dividend to $1.60 per share. Our recent CCAR results underscores the strength of our balance sheet and as previously announced our current stress capital buffer remains…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Betsy Graseck with Morgan Stanley. Please proceed with your questions.

Hi, good morning.

Hey, good morning, Betsy.

So on NII, I know you guided to the upper end of the range, even though you've got slower loan growth, clearly due to your NIM improving. At least that's one driver. There's others as well. I just wanted to understand how you're thinking about the securities restructuring from here? Is this something that you would consider continuing or is it -- we should look at it as a one-off from -- using the Visa gains? And I ask just from the context of trying to think through NIM trajectory from here. Thanks.

You should think of it as a one-off. I mean, you never say never and I don't know what the future holds, but practically at this point, we don't have to do any restructuring on anything to hit that stated goal of the 2025 record NII.

And we don't have any plans to do that.

Okay, great. And then could you speak to how you're thinking about deposit pricing and levels. I mean, clearly there was tax related outflows and things like that this quarter, and with loan growth being muted, should we be anticipating deposits stable to down, or are you going to be out there trying to get deposit growth, just again, asking from the context of how we should think about deposit pricing as we work through our models? Thanks so much.

Yes. Sure, Betsy. I would say the short answer to that is, stable to down is our expectation with an emphasis on stable. Things have really stabilized year-over-year as you know. So our expectation is, some downward drift but not anywhere near the level that we've seen in the last couple of years.

Got it. All right. Thanks so much. Appreciate it.

Sure.

Thank you. Our next questions come from the line of John Pancari with Evercore ISI. Please proceed with your questions.

Good morning.

Hi, John.

On your NII outlook, it's good to hear the NII inflection and the confidence there, excluding the $70 million benefits from the securities repositioning in the back half of this year. I mean, it appears that the underlying NII run rate for the back half was guided a bit lower. Is that mainly loan growth that's the driver? I mean, if you could just talk through that a little bit in terms of the factors impacting that run rate.

Well, I could [Multiple Speakers]

It wasn't -- If you backed out the restructuring, the guide would still be higher. And we did that while muting our loan growth assumption. And we did that because we kind of just got tired of saying that, hey, loan growth is going to come at some point. So we took it out of the forecast. If it shows up, we will benefit like everybody else.

I think that's an important point. That's the big difference in this quarter. We changed our guidance for average loans to be up 1% or approximately 1% for the year, John. As you can see now, down less than 1%. We don't control that. There's a basis for some loan growth in the second half of the year. But the important point is, we've taken it out of our guidance and our NII improved to the better end of the previous guidance, not just due to the securities restructuring, but also the positive deposit dynamics and so forth.

Okay. All right. Now, thanks for the clarification. It helps. And then just separately on the capital front, clearly the AOCI benefit from the securities repositioning is certainly noted. How do you feel now in terms of the pace of buybacks as you look out, just given where you stand now on CET1 and from a fully phased in, how does it make you feel about the pace of buybacks here? Could it remain at the $100 million pace per quarter or possibly accelerate?

Yes. I mean, right now we're on pace and we continue to -- we expect to continue the pace that we've been on for the first couple of quarters. And as you know, the new rules are still in flux, so there's not finalization there. And then beyond that, I think, a driver will be what happens with loan growth, which would be a factor in terms of that being our highest and best use of our capital. But that'll be a factor in terms of deciding on buybacks. But the important part is that we are buying back shares.

Yes, I think, John, just on buybacks, I mean, at some point, I got to believe loan growth comes back. But to the extent it doesn't, we're generating a lot of capital, obviously, in excess of our dividend. And we'll face that question. If we're not using that capital for loan growth, should we accelerate deployment and buybacks? We're not there yet, but that happens down the road if loan growth doesn't materialize because we're generating a lot of capital.

Got it. Okay, that's helpful. Thanks, Bill.

Thank you. Our next questions come from the line of Erika Najarian with UBS. Please proceed with your questions.

Hi. Good morning.

Good morning.

Good morning. Going back to Slide 9, I presume that the stabilization in deposit rates fade, which is quite notable as part of the upgrade of the core NII guide, even without the restructuring. And you answered Rob, Betsy's question, I gather, on a balances standpoint, but perhaps give us a sense on how you think deposit rate paid will trend from here and maybe under the scenario of rates staying where we are versus the scenario of what the forward curve is pricing and how quickly you may be able to reprice?

Yes, sure. Our plan -- so Slide 9 is a good slide and that clearly shows a decline in the increase of the rate paid. The short answer to one of your questions there is, we do expect the rates [indiscernible] drift up a little bit, but in contrast it's more like a handful of basis points versus the contrast to the previous quarters where you see 60 or 50 and even 30 in recent quarters. So it's slowed down considerably. That's our expectation in the short-term, Erika. When we get into rate cuts, we'll see -- we'll be able to move pretty quickly on the high rates paid on commercial and [indiscernible]. But we still do have these interest-bearing consumer deposits that are below market that will grind higher. So that's something that we've talked about before and just something that we'll need to keep our eye on.

Got it. And my second question is, it refers back to Slide 6 in terms of the forward starters. When I look back at your 10-Q disclosure, it seems like you're largely neutral to interest rates. And I know that you and Bill have talked a lot about the different factors that drive the inflection point in the Nike Swoosh. I'm wondering if the addition of the $18 billion in forward starters with the received fix of $4.31 billion, does that impact the magnitude of the Swoosh for 2025?

That's a good question.

Well, my answer to that would not necessarily be the magnitude, but the certainty. So essentially what we've done is locked in some of the swoosh.

Probably 50 basis points ago. One of the issues, of course, when everybody talks about fixed rate asset repricing is, what is it repriced to? And of course, therefore, we are exposed to whatever that five-year rate is, a year and two out. And those forward starting swaps simply with a very opportunistic point locked in materially higher rates than where we are today. To Rob's point, that just locks in the certainty of what we'll be able to produce on a go-forward basis.

Got it. And Bill, I think that's such a good point, because I think when people are taking a fixed asset repricing, sometimes they misthink about the $525 million as opposed to whatever. It could be at four, right, by the end of next year. And to that -- to your point, you've locked in a certainty. Okay. Thank you.

Thank you. Our next question come from the line of Scott Siefers with Piper Sandler. Please proceed with your questions.

Good morning, everyone. Thanks for taking the question. Rob I was hoping you could maybe touch on sort of major fee components in light of the software expectation. I mean, it sounds like it's just a -- or mostly a function of mortgage, which sort of is what it is. But just curious to hear sort of what do you think is going well? What will need a heavy lift? That kind of thing.

Yes, it's mostly a refinement, Scott. So, for the full year guide around the fees, we lowered our expectations of increase, as you know, from up 4% to 6% to up 3% to 5%. So still up and a small shift. Most of that coming from continued softness in mortgage, which we expect to be on the -- continue in the balance half or second half of the year, a little bit less than what we were expecting. To a lesser extent tied to the reduced loan guidance, we do have loan-related fees within our capital market segment, think loan syndication. So generally speaking, if there's fewer loans, there'll be fewer loan syndication fees. So that's just a direct correlation there to that guide. And again, we could see loan growth, and if that's the case, then those fees would come back. But that's the general thinking, everything else on schedule, so to speak.

Okay. Perfect. Thank you, Rob. And I wanted to ask a little bit of a kind of fine-pointed one on loan growth. I think, Bill, in your sort of prepared remarks, you noted the introduction of your first new credit card in a while, as well as plans to introduce more. Can you sort of contextualize your aspirations for that business and sort of the path to get there over time?

Yes, I mean, basically we want to have our fair share of consumer lending products with the clients we serve in our traditional DDA and other products. And we don't today. We're there on home equity. We're probably close in mortgage. We're under-prevented in auto and in card and in card in particular, we just haven't had good offerings. We've had stale technology, we've had slow -- we need to improve and it's an opportunity for us.

Okay. All right. Perfect. All right. Thank you guys very much.

Thank you. Our next question come from the line of Ebrahim Poonawala with the Bank of America. Please proceed with your questions.

Good morning.

Good morning.

I guess, maybe, Rob, it looks like you've locked in a lot of asset repricing. As we think about where the NIM should normalize relative to 2.6%, give us a sense, I mean, you probably have this number. Do we hit 3% at some point next year in terms of what the normalized rate would be? And can we get to a 3% plus NIM next year, even with maybe four or five rate cuts?

Sure. So, we don't necessarily provide NIM guidance, because it's more an outcome than anything. But to answer your question, we've operated in, call it a normal environment at a 3% NIM margin. So if we definitely expect to go up into 2025, if we approach those levels, it won't be like we haven't been there before. So it's reasonable.

Got it. And just one quick one on credit quality. I think I heard Bill say not a whole lot ex-CRE office, but give us a sense if you're seeing any cracks within the C&I customer base from the prolonged period of like just higher for longer rates, just how do you handicap the risk of a downturn or a recession over the coming months or the next year?

Yes. So, when we take a look at our total reserves and our total portfolio, CRE office aside, things are pretty stable. Maybe on quarter-to-quarter basis, consumers are a little bit better, commercial non-CRE is a little bit worse, but not bad. So, definitely some more movements, some downgrades reflecting the higher rates, slower economic activity in our commercial book, but no patterns or any themes to point out.

Got it. An outlook for reserves is stable from [indiscernible]

Reserves are stable, yes.

Got it. Thank you.

Sure.

Thank you. Our next question come from the line of Bill Carcache with Wolfe Research. Please proceed with your questions.

Thanks. Good morning, Bill and Rob. Following up on your NIM and NII commentary, is there a point as we start to get cuts where you would start to worry that those rate cuts would potentially begin to negate some of the repricing benefit? And then separately, amid the debate over whether the curve is going to steepen or flatten depending on the outcome of the election. Maybe could you just give us a little bit of a perspective on how PNC is positioned for either a flatter or a steeper yield curve environment?

Sure. We are largely indifferent. I mean, at the very, very margin, we benefit on the Fed cut rates from a floating rate standpoint. Of course, we're exposed to the steepness of the curve because that plays in the how we reprice maturing fixed rate assets and that's a variable. It's a variable for us. It's variable for everybody. It's one of the reasons we lock some of it in. My own belief in our positioning is such that even though we would expect the Fed to cut here. I think in the end, somewhat sticky inflation, the fact that deficits matter, it's going to cause the curve to steepen out. So we locked some of it in. I don't feel terribly worried about the need to lock the rest of it in. I just think we're in a good place. We're going to do fine.

Okay. That's helpful. And then on the asset quality side, Slide 14 shows that steady upward trajectory in NPLs, but the reserve rate is relatively stable to down slightly, as you mentioned. And so, it looks like the loss content that you see in the portfolio is stable. It's certainly not rising despite the rising NPLs. Maybe could you speak a little bit to that? And are there any implications of loan repricing that you are concerned about? For example, would you expect any impact on the credit performance of your customers as their loans begin to reset to higher rates?

I mean, just quickly, the movement from -- particularly in office CRE, right, from criticized to nonperforming-related reserving and charge-offs is all going as we've expected. That's the natural progression of that cycle, nothing's changed. We're not surprised by anything. We're reserved for it. Credit quality of corporate America as it relates to at what point do the people who have locked in fixed rates and loan rates start to have to pay more. Ultimately, at the margin is going to impact the way we rate somebody. I think about multifamily is an example where higher rates have hurt coverage ratios. It's not going to cause losses, but it's caused us to downgrade that asset class simply because the excess isn't there. I think it will flow through to corporate America over a period of time as well. But I'm not particularly worried about it.

And I'll just add that our reserves are adequate. The increase in the non-CRE NPLs in commercial really was one single large credit that is in our business credit fully secured. So...

Yes, not in the U.S.

So it doesn't have a lot of loss context.

Okay. Understood. Thanks, Bill and Rob. Bill, if I could squeeze in one last one for you. I wanted to get your thoughts on the FedNow Instant Payment Services, which has been getting some attention. Is there a fee opportunity there? I guess, what level of engagement are you seeing from PNC customers? Do you see potential for lower cost instant digital payments disintermediating debit? It'd just be helpful to hear your thoughts on the overall risk versus potential benefits of that to PNC.

I don't think FedNow has any impact on PNC. To be honest with you, we've been active with real-time payments in the Clearing House and the use cases, all the ones you can think about from insurers who want to pay real-time claims in a disaster through to certain payroll capabilities through to Zelle, for example. And FedNow doesn't add or subtract anything to that opportunity. The challenge you have with real-time payments, both at the Clearing House and FedNow at the Fed is they are not networks, they are a rail to move money. And the distinction between that is a network has very clear rules on who's responsible for items that don't transmit the right way, who's responsible for fraud, who's responsible for returns on and on and on. And neither of those two networks purposely were built -- or sorry, neither of those two payment rails purposely were built to [indiscernible] moving money, which is very different. So I don't think long term, it has much of an impact, to be honest with you.

Thank you for taking my questions.

Thank you. Our next questions come from the line of Ken Usdin with Jefferies. Please proceed with your questions.

Hey. Thanks a lot. Good morning. You guys gave us a great table last December with the repricing of fixed assets through 2025. And I'm just wondering, how much carry forward will there also be through 2026? Should we think about that kind of ratably? Obviously, it's been six months since you gave us that slide, but just wondering just how that rolls as we look further ahead. Thanks.

Well, Ken, we're going to refrain from 2026 guidance on the call here today. But it will continue to increase, but the real change in the dynamic occurs obviously in the first and second quarter of 2025 and then grows from there.

Okay. Yes. That's why I'm asking the building box question as opposed to NII question.

Sure. Yes. Sure.

Okay. Understood. And then on the expenses, so you guys have been doing a great job holding the line. And I just wanted to ask like it looks like there's a pretty decent ramp baked into the second half on expenses. And I'm just wondering like what influences that? Because it seems like expenses will be growing faster than revenues in the second half. So -- or certainly faster than fees. So can you just walk through, is that conservatism? Is there some catch-up on investments that you're making? Any context on that? Thanks, Rob.

Yes, sure, sure. No, we've outperformed on the first half, no doubt about it, and we feel great about that, and that's one of the reasons why we increased our CIP goal and also increased our guidance for the full year expenses. In the third quarter, it doesn't all happen uniformly. In the third quarter, we do have some investments coming online, technology investments coming online that bring some depreciation expense. We've got an additional day, those sorts of things. So it's all part of the plan. It's just expenses don't fall uniformly throughout the year.

Okay. Got it. And then, obviously, as that plays forward and if NII is better next year, you can also afford more cost growth, but we'll hear about that later.

Yes. That's right.

Got it. Thank you.

Sure.

Thank you. Our next questions come from the line of Mike Mayo with Wells Fargo. Please proceed with your questions.

Hi. Similar to some of the others, maybe this is like the game of jeopardy. I think the answer is, you have continued improvement program with expense savings going from $425 million up to $450 million. You have securities repositioning that's giving you a boost to NII for the rest of this year, and you have fixed asset repricing that helps your securities yield go up by 400 basis points. Your forward payment swaps go up by 180 basis points and a little bit some other things. So the answer is, all those things are going in the right direction, yet you still have a guide for negative operating leverage for this year. I guess, what is the question? Or why is that? Or you can't eke it out or...

Well, sure. So now the question...

And why should -- yes. Go ahead.

Yes. So just to keep with your jeopardy approach there, the question would be what loan growth going to be in the second half. So it did come down.

Okay. That's helpful. So -- yeah, so what's -- Bill, you were very adamant three quarters ago about loan growth. And look, if you get NII in your range even without getting loan growth, I think people would rather take that than not. But we're hearing all the -- the biggest capital market players are just gushing with their expectations that this is a big capital markets recovery, the world's back, everything else. H8 data actually showed a little bit better. I think you might have underperformed the H8 data this quarter on loan growth. So is it, A, that you're just being more prudent and conservative and you're not seeing the pricing that you want; or B, your mix is just a little bit differently; or C, maybe your team is not executing quite as well as you'd like them to do?

I think you're trying to read into this too hard. Look, we're basically on H8, maybe a little soft on consumer because our card book didn't grow. When C&I comes back, traditionally, we'll do better. We've been actually adding DHE. They're just not drawing and we're winning clients. All we did, Mike, was this whole notion of if we're giving guidance on the expectation and some crystal ball that says there's going to be loan growth when thus far, we don't see evidence of it, we just took it out. If it shows up, then it's additive to everything we do. And we certainly aren't underperforming. We're winning clients at a pace that we never have. So it's literally this notion of when do they draw on lines and we just put -- we got tired of talking about it. When they do it, we'll benefit, and it will add to all of those numbers that you're looking at.

And any meat on those bones about customer acquisition? You did mention 51% loan utilization. That seems a pretty low level versus 53% a year ago and 55% historical. So I guess, that would back up what you're saying, but how much are you growing loans? You expanded to so many MSAs and implemented teams and did all that stuff that helps sometimes and other times it doesn't help as much.

Yes, I don't -- Rob, do you know DHE number?

I don't know off the top of my head.

We've grown exposures, and we've won clients at a pace well beyond, particularly in the new markets, but overall, well beyond what we've managed to do historically. We ought to and we will produce some of those metrics for you.

Yes. No, that's all good. And just to add to that, Mike, CapEx sales, as we said in our opening comments, CapEx sales ratios are low, inventory levels are low. So there's just -- there's a lot of pointing to loan growth. It's just we don't control it.

And just last follow-up on that because, Bill, you've been around for a while and Rob, the disconnect between what we're hearing and seeing in the capital markets and that activity picking up versus the still subdued loan growth as you say, CapEx and inventory are lower. It just seems CEO confidence is up, people ready to do all sorts of things, yet when the rubber meets the road with you guys, you're just not seeing it that much.

You're trying to isolate us, and we're not isolated. I would happily tell you loan growth is going to be 2%, which is what all our peers are going to say. And if they hit 2% -- if we hit 2% -- sorry, if they hit 2%, then we'll hit 2%.

Or maybe a little better.

Yes. It's I just -- I don't see anything suggesting that's going to happen. So maybe -- I mean, what would you rather have us do here put in our forecast a -- we hope this happens number or just give you numbers that we know are going to happen.

No, I understand. Underpromise, never deliver, it's what you try to do. It's just -- in the past, you said at this stage of the cycle, and historically, you've seen loan growth come back. So it sounds like this cycle might be -- it might be a little bit different, it might not be.

Yes. I think I've spent a lot of time pondering this, Mike. I don't -- look, at the margin, it's going to be that the cost of holding inventory, right? Just the cost of that drawn revolver is big time on the radar of corporates who are managing their own profitability. If you can run the lower inventory, your interest rates go way down when Fed funds is 5.25%. So I think that's part of it. And I think this whole uncertainty as we come up into the election on what's it going to look like from a regulatory basis, what am I allowed to invest in, am I going to get it approved? All of that, there's a lot of pent-up energy behind that, and we'll see. But I don't know. And it literally was this thing of rather than keep guessing and wishing, if it happens, it's a great outcome. But we don't need to rely on it.

Got it. Okay.

Thank you. [Operator Instructions] Our next question come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your questions.

Good morning. Bill, I haven't heard you guys talk too much about credit card. You mentioned a new product and some more coming, and just thoughts on kind of the strategy for card going forward, and the targeted customer, and then any interest in acquiring portfolios, which has not really been the radar in the past. Thanks.

Yes, we're not going to acquire portfolios. The product that we have historically offered our existing clients and the service levels, websites, processing that went along with it were less than what we aspire to. We have an ability to get higher penetration with our existing clients, offer them better products, have better technology. Historically, we prioritized tech investments inside of our core retail space. So think online, mobile, real time. And we just haven't put the same energy, although about a year ago we started to, into what we do in credit card. Some of that is service technology, ease for customers, application, all of that stuff. Some of it is just getting better at approvals. And we're not going to change our credit box, but we're missing a lot of clients who are in that credit box, because we make it too hard for them.

Yes, in simple terms, we're just under-penetrated relative to industry averages. Nothing hugely aspirational other than just to have our fair share.

Yes, that makes sense. And then just separately, I think you still have half of your original Visa stake. And what's kind of the plan on that? And I assume that's in the $750 million range, mark to market for Visa, net of hedges and stuff like that. But just frame what's left and the timing of it? Thanks.

I'm sorry, I missed the front part of that question.

Oh, just the remaining Visa [Multiple Speakers]

What happens with the back half? So the 50% that we did not have the ability to monetize. Well, Visa controls that schedule. Some of it's reliant on the litigation resolution and some of it's reliant on the schedule they've laid out, which is sort of a multi-year exchange. So we'll just continue to monitor it.

Okay. Thank you.

Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your questions.

Hi, Bill. Hi, Rob.

Hey, Gerard.

You guys have a good fortune of having insights into the commercial real estate business through [Midland] (ph), your CNBS servicer. Can you give us some insights and color on what Midland is seeing in terms of their pipeline of increased special servicing, which of course I know has higher revenue, but more importantly, maybe directionally, shows us where accredited is heading.

Yeah, that's a good question, Gerard. Ironically, their special servicing balance has actually went down in the quarter, which is a little bit of a head scratcher. We don't think that's necessarily indicative of a trend. We do expect it to continue to go up. But from the start, and I think you've asked this question before, it's been much, much slower in terms of those increases, those balances than you would have expected.

Yeah. I went through forecasts on sort of expectations on maturity bubbles and property types. We don't expect that balance -- it's not going to grow at the pace that intuitively you might have thought of.

Yes, and that we thought a year ago.

Yeah, because things are getting cured, they're getting sold off pretty quickly. There's -- for things that are really bad, there's still a lot of capital in the market. So they're turning it faster than perhaps we would have thought.

Are they seeing any change in the product? Is it still primarily commercial office, or is it moving into any of the product areas?

It's mostly office.

Got it. Okay.

It's interesting. It's all of the above for all of the historical reasons. So there's still a little retail, there's hotels that will show up in there, there's multi-family that is in the multi-family that went to Freddie Fannie and then increasingly its office and the bubble down the road looks more like office.

Got it. And then just on your commercial real estate in the Slide 15, you give us obviously good detail and you've always told us about this multi-tenant office is the issue. It looks like obviously with 52% criticized, how far are you along in analyzing or reviewing that portfolio? Are you completely through it and now it's going a second time? Or any color there?

I mean, we are –

Oh, we've analyzed.

I mean, we're completely through it every quarter. I mean, a couple of things. I don't know we put this out there, but there's actually not that many loans. So we don't have thousands of small loans. These are typically larger loans. And so, we've gone asset by asset. And as anything gets close to being troubled, we look at two different appraisals, one of which is our own self-generated, using more extreme negative assumptions than what you might get from a commercial appraiser. We use higher vacancy rates, higher interest rates, longer time to lease up, higher cost to rehab, all that other stuff in our evaluation. So we go through this. We know all the properties. We keep looking at them. We know what's going to happen to them. We know the timelines. Look, it's not a great outcome, but there's nothing in there that I think is going to surprise us.

Very good. And just one last one on this, Bill. Geographically, are you guys finding certain parts of the country weaker than others? I know there's a lot of talk about the big urban markets, Class B and C buildings. How about from your vantage point, what are you guys saying geographically?

It's not -- it's property by property, right? You could be in a lousy city, but be in the right place and do fine. So, I just don't know that it matters.

Got it. Okay.

That relates to our portfolio for sure.

Yes. Got it. Okay. Thank you, guys.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Bryan Gill for closing comments.

Well, thank you all for joining our call this morning. And if you have any follow-up calls, feel free to reach out to the IR team, and we'd be happy to jump on a call with you.

Thanks everybody.

Thank you.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.