PNC Financial Services (PNC) Q1 2022 Earnings Call Transcript

PNC Financial Services (PNC 0.43%)
Q1 2022 Earnings Call
Apr 14, 2022, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Bryan Gill

Welcome to today's conference of The PNC Financial Services Group. Participating on this call are PNC's chairman, president, 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 materials are all available on our corporate website, pnc.com, under investor relations. These statements speak only as of April 14th, 2022, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Thanks, Bryan, and good morning, everybody. As you've seen, we had a solid start to the year as we grew loans and securities, controlled expenses and our credit quality reserves and capital levels remain very strong. As we previously disclosed, noninterest income was below our expectations for the quarter. And while we had expected fees to be down sequentially, reflecting typical first quarter seasonality, the decline actually exceeded normal interest rate volatility, and probably, the Russian-Ukraine conflict adversely impacted certain of our capital markets businesses among other areas.

As we look forward, we're clearly in an environment of uncertainty here. We're also in an environment with rising interest rates, which benefit banks with increased loan demand, which benefit banks. And in PNC's case, a business or a bank that never changed its credit box on credit terms got really easy business that has a very -- or a bank that has a very solid mix of fee-based businesses, and importantly our bank that has substantially expanded its geographic presence. And I want to hit on that in a second just as it relates to our progress on BBVA.

And I would tell you, I just -- I couldn't be more proud of what we've been able to accomplish over the last about 15 months in total now, but in particular, over the last couple of quarters. And we still have a lot of work to do, but to put it in perspective, our staffing is largely complete. And our calling effort and particularly versus the fourth quarter, has increased substantially, and our sales and pipelines are robust. Just to give you an idea of the activity behind this, in the legacy BBVA USA geographies, corporate commercial banking costs have doubled since the fourth quarter, and sales have increased almost 50%.

And as we expected across C&IB, nearly half of these sales were actually noncredit related to the legacy BBVA USA geographies. We switch to the retail side. We're obviously focused on building customer relationships. Just to give you an idea, our sales per branch were approximately 60% higher in March compared to what they were in December with improvements across mortgages, cards, and referrals to PNC investments.

In our Asset Management Group, we're making great progress and strategic investments to hire key people in business development and advisor roles, and importantly, our client opportunity pipelines are really strong. From a balance sheet perspective, we continue to deploy our excess liquidity as you've seen with solid loan growth and securities purchases. Spot loans grew $6 billion in the quarter, driven by the commercial side, which saw a nice increase in utilization. In fact, if we exclude the impact of PPP loan forgiveness, spot commercial loans grew $7 billion.

The fastest organic quarterly growth we've seen since the commercial defensive draws that we saw at the start of the pandemic. And by the way, we've seen that growth carry into the early part of April. We also remain active on the security side with net purchases of almost $6 billion during the quarter. From a balance sheet perspective, the securities were offset by unrealized losses due to rising interest rates, which Rob is going to discuss in a few minutes.

This doesn't impact our regulatory capital or earnings, but during the quarter, we moved approximately $20 billion of our securities available for sale to help the maturity to limit future valuation changes due to interest rate movements. Importantly, we saw a solid rebound in the yield on our securities. Overall, we believe we are well-positioned for the rising interest rate environment to deliver net interest income growth and NIM expansion throughout the year. And finally, during the quarter, we returned about $1.7 billion of capital to shareholders through share repurchases, dividends.

And importantly, based on our performance and strong capital levels and the board's confidence in our execution of our strategic priorities, we recently announced a substantial increase to our quarterly dividend of $0.25 per share to $1.50, or 20%. I just want to close by thanking our employees for their hard work and dedication to our customers and communities. Moving forward, as I said, we believe we are well-positioned to continue to grow shareholder value as the economy normalizes and rates move higher than we realized the full potential of the combined PNC and BBVA USA franchise. And with that, I'll turn it over to Rob for a closer look at our results, and then we'll take your questions.

Rob Reilly -- Executive Vice President and Chief Financial Officer

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

Deposit balances averaged $453 billion and were relatively stable compared to the prior quarter. Our tangible book value was $79.68 per common share as of March 31st, a 15% decline linked quarter, which was entirely driven by mark-to-market adjustments in our securities and swap portfolios as a result of higher interest rates. As a category three institution, we opted out of recognizing AOCI and regulatory capital, and as of March 31st, 2022, our CET1 ratio was estimated to be 9.9%. Given our strong capital ratios, we continue to be well-positioned with significant capital flexibility.

And as Bill just mentioned, our board recently approved a $0.25 increase to our quarterly cash dividend on common stock, raising the dividend to $1.50 per share. Additionally, during the first quarter, we completed share repurchases of $1.2 billion or 6.4 million shares. Slide 4 shows our loans in more detail. Average loans increased $2 billion linked quarter, and on a spot basis, loans grew $6 billion, or 2%.

PPP loan balances continued to decline and impacted first quarter growth by approximately $2 billion on both an average and spot basis. Looking at loan growth, excluding the impact of PPP loans, average loans increased $4 billion or 1%, driven by $5 billion of growth in commercial and industrial loans, partially offset by a $1 billion decline in commercial real estate balances and average consumer loans were stable linked quarter. On a spot basis, loans grew $8 billion. Commercial loans grew $7 billion, driven by higher utilization as well as new production within corporate banking and business credit businesses.

Notably, in our C&IB segment, the utilization rate increased 85 basis points and our overall commitments were 2% higher compared to year-end 2021. And consumer loans increased $900 million as higher mortgage balances were partially offset by lower auto and credit card loans. Moving to Slide 5. Average deposits of $453 billion remained stable compared to the fourth quarter.

On the right, you can see total deposits at period end were $450 billion, a decline of $7 billion or 2% linked quarter. All of the decline was on the commercial side where deposits were $10 billion lower, primarily driven by seasonal cash deployments. Partially offsetting the commercial decline, consumer deposits increased $3 billion, reflecting seasonally higher balances related to tax refund payments. Overall, our rate paid on interest-bearing deposits remained stable at four basis points, and importantly, we remain core funded with a loan-to-deposit ratio of 65% at the end of the first quarter.

Slide 6 details the change in our average securities and Federal Reserve balances. We've maintained high levels of liquidity over the past year while opportunistically purchasing securities. This trend continued into the first quarter as we added primarily U.S. treasuries and agency RMBS.

As a result, average security balances increased by 5% or $6 billion compared to the fourth quarter of 2021, and now represent 27% of interest-earning assets. Slide 7 highlights the composition of our high-quality securities portfolio as well as the balance changes from year-end March 31st. During the first quarter, we added to our portfolio with net purchases of approximately $6 billion. However, the increase in rates during the first quarter resulted in higher net unrealized losses of approximately $6 billion, and accordingly, our period-end balances remained relatively state.

To moderate the impact of rising rates on security values and correspondingly AOCI, we transferred approximately $20 billion of securities from our available-for-sale portfolio and to help maturity at quarter-end. Importantly, fluctuations in AOCI did not have an impact on our earnings. However, we are mindful of the AOCI impact on tangible book value, and we'll continue to evaluate potential opportunities to further transfers. Turning to the income statement on Slide 8.

As you can see, first quarter 2022 reported EPS was $3.23, which included pre-tax integration costs of $31 million. Excluding integration costs, adjusted EPS was $3.29. During the first quarter, integration costs reduced revenue by $16 million and increased expenses by $15 million. First quarter revenue was down $435 million or 8% compared with the fourth quarter.

Expenses declined $619 million or 16% linked quarter, and excluding the impact of integration expenses, noninterest expense declined 7%. The first quarter provision recapture was $208 million, primarily reflecting the impact of improved COVID-19-related economic conditions, and our effective tax rate was 17%. So in total, net income was $1.4 billion in the first quarter. Now let's discuss the key drivers of this performance in more detail.

Slide 9 details our revenue trends. Total revenue for the first quarter of $4.7 billion defined $430 million linked quarter. Net interest income of $2.8 billion was down $58 million, or 2%. Higher securities and loan balances, as well as increased security yields, were more than offset by a $74 million decline in PPP revenue due to loan forgiveness activity and the impact of two fewer days in the quarter.

And net interest margin of 2.28% was up one basis point. As we recently announced and effective for the first quarter, we recategorized the presentation of our noninterest income and provided an update to the related guidance. Consistent with those revisions, first quarter fee income was $1.7 billion, a decline of $296 million or 15% linked quarter. Looking at the detail of each revenue category.

Asset management and brokerage fees decreased $8 million or 2%, reflecting lower average equity markets. Capital markets-related fees declined $208 million or 45%, driven by lower M&A advisory fees mostly due to elevated fourth quarter transaction levels, but also some delayed transaction activity in the first quarter. Card and cash management revenue decreased $26 million or 4%, driven by seasonally lower consumer spending activity. Lending and deposit services was essentially stable linked quarter, declining only $4 million.

Residential and commercial mortgage noninterest income was $50 million lower, primarily due to decreased commercial mortgage activities. And finally, other noninterest income declined $81 million, primarily due to lower private equity-related revenue and once again compared to elevated fourth quarter levels. Turning to Slide 10. Our first quarter expenses were down by $619 million or 16% linked quarter.

Excluding the impact of integration expenses, noninterest expense declined $243 million or 7%. The majority of the decline was a lower personnel expense, primarily reflecting the lower incentive compensation. We remain deliberate around our expense management. At year-end 2021, we achieved our objective to reduce BBVA USA's annual operating expense run rate by $900 million.

And as we previously stated, we have a goal to reduce costs by $300 million in 2022 through our continuous improvement program, and we're confident we'll achieve our full year target. As you know, this program funds a significant portion of our ongoing business and technology investments. Our credit metrics are presented on Slide 11. Nonperforming loans of $2.3 billion decreased $182 million or 7% compared to December 31st, and continue to represent less than 1% of total loans.

Total delinquencies were $1.7 billion on March 31st, a $286 million decline from year-end, reflecting lower consumer and commercial loan delinquencies. The majority of these decreases resulted from our progress in resolving BBVA USA conversion-related administrative and operational delays. Net charge-offs for loans and leases were $137 million, an increase of $13 million linked quarter. Our annualized net charge-offs to average loans continues to be historically low at 19 basis points.

And during the first quarter, we reduced our allowance for credit losses by approximately $300 million, and our reserves now total $5.2 billion or 1.8% of total loans. In summary, PNC reported a solid first quarter, and we're well-positioned for the remainder of 2022 as we continue to realize the potential of our coast-to-coast franchise. In regard to our view of the overall economy, we expect strong growth over the course of 2022, resulting in 3.7% average GDP growth. We also expect the Fed to raise rates by an additional cumulative 175 basis points through the remainder of this year to a range of 2% to 2.25% by year-end, and all of this is consistent with the update in our recent 8-K filing.

Looking at the second quarter of 2022 compared to the first quarter of 2022, we expect average loan balances to be up 2% to 3%, which includes a $1.3 billion decline in PPP loans. We expect net interest income to be up 10% to 12%. We expect noninterest income to be up 6% to 8%, which results in total revenue increasing 9% to 11%. We expect total noninterest expense to be up 3% to 5%, and we expect second quarter net charge-offs to be between $125 million and $175 million.

Considering our reported first quarter operating results, second quarter expectations, and current economic forecasts for the full year 2022 compared to the full year 2021, we expect average loan growth of approximately 10% and spot loan growth of 5%. We expect total revenue growth to be 9% to 11%. We expect expenses, excluding integration expense, to be at 4% to 6%. And we now expect our effective tax rate to be approximately 19%.

And with that, Bill and I are ready to take your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question is from the line of John Pancari with Evercore ISI. Please go ahead.

John Pancari -- Evercore ISI -- Analyst

Morning.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Hey, John.

John Pancari -- Evercore ISI -- Analyst

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

Rob Reilly -- Executive Vice President and Chief Financial Officer

Yes. Sure. John, it's Rob. Good morning.

So in regard to capital markets, you'll recall, at the beginning of the year, our expectations for capital markets was to be down approximately 20% or so from '21 levels just because the '21 levels were so elevated. The first quarter was slower than we expected even at those reduced levels, but for the full year guide, I have most of that back in there. So most of what we expected to occur in the first quarter that didn't occur is still in the full year guidance. So that's why we're still 9% to 11% growth.

John Pancari -- Evercore ISI -- Analyst

OK. Got it. All right. That's helpful.

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

Rob Reilly -- Executive Vice President and Chief Financial Officer

Yes. OK. This is Rob again, John. So on the deposits in the quarter, we saw a spot decline and all of that was on the commercial side, which we see as largely seasonal.

Consumer deposits on a spot basis were actually up, reflecting tax refunds and some seasonality there. So that's the story on the deposits. So the full year in regard to the betas relative to what we expected at the beginning of the year, we have increased our betas consistent with the increase in the Fed rate hikes forecast. Along the lines of what we saw in the last cycle, maybe a little bit less just because we're working off such high levels.

Very quiet -- as you pointed out, very quiet on the first 100 basis points or so, but showing up if our rate forecast is correct, showing up in the third and fourth quarter.

John Pancari -- Evercore ISI -- Analyst

Got it. Thanks. If I could ask just one more thing on the loan side. I mean you mentioned the higher line utilization on the commercial side.

Are you beginning to see capex plans drive loan demand? And then lastly, are you seeing any of the volume coming back from the capital markets back to the bank loan market yet on the commercial side?

Bill Demchak -- Chairman, President, and Chief Executive Officer

I think the utilization is part of -- reflects part of the slowdown on the capital market side in bonds. Clients continue to be active. So yes, some pickup in capex build in inventory. The other thing we're seeing beyond the utilization change, I think we saw a similar percentage increase in just new dollars out -- sorry, not percentage, but notional amount increase of new DHE commitments out.

So some of its utilization, some of its winning clients, utilization driven by capital markets being a bit of disarray together with increased capex.

Rob Reilly -- Executive Vice President and Chief Financial Officer

And higher inventory levels, of course, yes.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Yes. Yes.

John Pancari -- Evercore ISI -- Analyst

Got it. Thank you.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Sure

Operator

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

Scott Siefers -- Piper Sandler -- Analyst

Good morning, guys. Thanks for taking my question. So, Rob, it was great to see you reiterate the full year '22 revenue outlook. And I think you sort of addressed this in response to the capital markets question previously, but I was hoping broadly, you could just kind of partially guide between what comes from NII and what comes from fees? I think 90 days or so ago, you guys have been thinking maybe mid-single-digit all-in growth for '22, if I remember correctly, but just given sort of the change in reporting and back others, etc.

Just curious to your thoughts.

Rob Reilly -- Executive Vice President and Chief Financial Officer

Sure. Sure. So 9% to 11% total for the full year. Compared to the beginning of the year, net interest income is a bigger component of that because of the rate increases and the higher balances.

So we're looking at that to be inside of that 9% to 11%, the NII, and the high teens. And then on the core fee piece, looking more toward flattish to maybe down low single digits, and most of the change there being on the mortgage outlook from the beginning of the year. So most of our fee categories are tracking to what we expected for the full year, including capital markets, as I just mentioned, but mortgage were off from what we thought at the beginning of the year because of rates. So residential and commercial mortgage, we expect it to be down low single digits.

We're now looking at maybe down 25% or 30% year over year. So that's where the fee change is largely resident.

Scott Siefers -- Piper Sandler -- Analyst

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

Rob Reilly -- Executive Vice President and Chief Financial Officer

Yeah. Sure.

Operator

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

Mike Mayo -- Wells Fargo Securities -- Analyst

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

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

Thanks for the question, Mike. In short, we don't have to. We've always been investing in our franchise. So if you think about -- we talk about our new markets, as I said in my comments, they are largely staffed at this point.

And so if I think about our people spend, we're kind of where we need to be. If I think about our technology spend, we've been going hard at that for a number of years, and we're more in the place of what can we actually get done in a sequence timeline, and we are about, hey, spend more money. So you're not going to see increases against what we expected in that space. So anyway, short answer to your question is, no, we don't need to spend the money, and not spending the money in no way detracts for -- from the growth that I think we're capable of.

Rob Reilly -- Executive Vice President and Chief Financial Officer

Or another way, we're not spending the money on investments and that's part of the guide.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Yeah. Another way to put it, yeah.

Mike Mayo -- Wells Fargo Securities -- Analyst

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

No. It's a fair question. I don't know that you were going to define share by share of C&I loans in the market. I think what we have to do, and we're working on, Mike, is presentation of just progress in underpenetrated markets compared to what we execute in one of our mature markets and then tracking that for you.

I think that's the best metric. So we look at loan balances. We look at fees. We look at percent of fees as a percentage of total revenues.

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

Mike Mayo -- Wells Fargo Securities -- Analyst

And then lastly, as it relates to buybacks, you had the book value, regulatory capital dichotomy here, which wins out when you think about buybacks?

Bill Demchak -- Chairman, President, and Chief Executive Officer

I'm not sure I follow the question.

Mike Mayo -- Wells Fargo Securities -- Analyst

9.9% CET1 ratio. So that's fine, that's good, but your book value went down. That's not as good. Do you still buy back the same amount of stock? Do you slow buyback? Do you adopt buyback stock at all, the AOCI impact?

Bill Demchak -- Chairman, President, and Chief Executive Officer

Yeah. Yeah. Yeah. So if you're simply asking the question, do we view our available capital based on the 9.9%, the answer to that is, yes.

Mike Mayo -- Wells Fargo Securities -- Analyst

OK. And then does that mean you continue to pace the buybacks? Or how do you think about that?

Bill Demchak -- Chairman, President, and Chief Executive Officer

We're going to be in the market. It's obviously -- I think it's more attractive today to buy back shares than it was toward the end of the year. So we're going to be in the market, and I don't know what we probably said.

Rob Reilly -- Executive Vice President and Chief Financial Officer

No. No. That's right. The answer is, it is the regulatory capital that we look at, Mike.

And the current pace that we've been on, we expect to continue. That average quarter -- the average quarterly pace, we were a little bit more this past quarter.

Mike Mayo -- Wells Fargo Securities -- Analyst

Got it. Thank you.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Sure.

Operator

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

Bill Carcache -- Wolfe Research -- Analyst

Thank you. Good morning, Bill and Rob. Following up on your deposit beta expectations being a bit lower in this cycle, given all the liquidity in the system. You said on the last call that you'd expect to see higher betas if the Fed shrinks its balance sheet dramatically, but that loan growth would be an offset to that.

Maybe could you help square those two points for us? And I guess just maybe discuss the risk that the pace the Fed has communicated could lead to the higher deposit flight risk?

Bill Demchak -- Chairman, President, and Chief Executive Officer

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

I assume everybody holds 10% on a loan. They borrow from us, they deposit somewhere else. It collectively builds deposits into the system. Collectively, we think that's going to cause -- will cause deposit growth to slow, but we actually think deposit growth is still going to be positive for the system.

And for us, -- so again, Fed balance sheet shrinks, but at the same time, we're going to see loan demand, we expect to see loan demand, we have seen loan demand at a pace that would generate deposits. So we're not particularly worried about that. Now what will happen, of course, is as the Fed gets rates substantially higher, betas are going to have to do a big catch-up move because all of a sudden, it's going to matter. Interest rates are going to get back to a place where people start paying attention again.

Now I don't know what that level is. I don't know that we've ever come off of a base of zero and trying to play catch up. The last time we thought about that, the Fed reversed course pretty quickly. So we're going to have to see how that plays out, but I think deposits in the system will still be there.

We just won't see the same growth we have over the last couple of years.

Bill Carcache -- Wolfe Research -- Analyst

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

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

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

Bill Carcache -- Wolfe Research -- Analyst

Yep. Yep. And If I can ask --

Rob Reilly -- Executive Vice President and Chief Financial Officer

And that's four basis points on core deposits, yes. Or borrowing is a little higher.

Bill Carcache -- Wolfe Research -- Analyst

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

Look, I think that's one of our fears. I think we're going to see that weakness in office properties flow through over a longer period of time. But -- and I think, by the way, that's very market-specific. So I would tell you, for example, I think in Pittsburgh here, we're going to struggle with that.

Now we don't have exposure. Interestingly, we don't have a lot of exposure here, but practically, I think there'll be less people in the buildings in Pittsburgh, and I think that's going to be the case in many metro areas around the country. And yes, I think that's going to cause lease rates to drop over time, and yes, I think that's going to impact office properties, but we're reserved for that, have been watching that. We pick our clients carefully, and at this point, we think most, if not all, of them have the wherewithal to make their way through that.

Bill Carcache -- Wolfe Research -- Analyst

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

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

So it will get out there into the P2 merchant space. Just at this point, not a direct competitor to the card rails for a variety of reasons, but not yet.

Bill Carcache -- Wolfe Research -- Analyst

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

Yeah. Sure. Next question, please.

Operator

[Operator instructions] Our next question is from the line of Gerard Cassidy from RBC. Please go ahead.

Gerard Cassidy -- RBC Capital Markets --- Analyst

Thank you. Hi, Bill. Hi, Rob.

Rob Reilly -- Executive Vice President and Chief Financial Officer

Hi, Gerard.

Gerard Cassidy -- RBC Capital Markets --- Analyst

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

Rob Reilly -- Executive Vice President and Chief Financial Officer

Yeah. And we've talked about this before, Gerard. Right now, we're in the low 50s, up from the high 40s that we saw through the bulk of last year. And normal -- just whatever normal is, we might expect somewhere in the mid-50s.

So we're moving toward that, not there yet.

Gerard Cassidy -- RBC Capital Markets --- Analyst

And Rob, is there any difference have you discovered yet with the BBVA customer that C&I customer versus a legacy PNC customer?

Rob Reilly -- Executive Vice President and Chief Financial Officer

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

They're all up in sort of similar amounts.

Gerard Cassidy -- RBC Capital Markets --- Analyst

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

Rob Reilly -- Executive Vice President and Chief Financial Officer

Yes. Yep, exactly.

Gerard Cassidy -- RBC Capital Markets --- Analyst

And how many discount --

Rob Reilly -- Executive Vice President and Chief Financial Officer

And again, it doesn't affect earnings. It's all going to pull. We balance between the flexibility benefit of available for sale versus the AOCI component of -- or a benefit of held to maturity. So we'll continue to look at that, but it's -- it will run its course.

And again, it doesn't affect earnings.

Gerard Cassidy -- RBC Capital Markets --- Analyst

Right. OK. And just lastly, I know you guys -- when you did the BBVA transaction, you were quite excited about the money transfer business is between, I believe, it was maybe Mexico and the U.S. Can you share with us any color on how is that going? Is it going as well as you expected? Have you been able to expand it?

Bill Demchak -- Chairman, President, and Chief Executive Officer

No. It's -- we've actually been really happy with it. It has expanded, and we're currently looking -- it's through several countries in Latin America today, and we're actually looking at expanding that through relationships into other countries there. And I think into Europe, although I'm not certain about that, it's dependent on correspondent banking relationships in the receiving countries that are responsible for know your customer.

But no, it's a big business. We actually white label it for others, and we're excited by it. We've been -- it's now mainstream on our consumer apps. And importantly, we're looking at some of that functionality to be tied into some of the things that we're actually doing on the corporate side.

Gerard Cassidy -- RBC Capital Markets --- Analyst

Great. Thank you, Bill. Appreciate it.

Bill Demchak -- Chairman, President, and Chief Executive Officer

Yep.

Operator

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

Bryan Gill

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

Bill Demchak -- Chairman, President, and Chief Executive Officer

Thanks, everybody.

Rob Reilly -- Executive Vice President and Chief Financial Officer

Thanks, folks.

Operator

[Operator signoff]

Duration: 40 minutes

Call participants:

Bryan Gill

Bill Demchak -- Chairman, President, and Chief Executive Officer

Rob Reilly -- Executive Vice President and Chief Financial Officer

John Pancari -- Evercore ISI -- Analyst

Scott Siefers -- Piper Sandler -- Analyst

Mike Mayo -- Wells Fargo Securities -- Analyst

Bill Carcache -- Wolfe Research -- Analyst

Gerard Cassidy -- RBC Capital Markets --- Analyst

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