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    PNC Financial Services Group Inc (PNC)

    Business Description

    PNC is one of the largest diversified financial services companies in the U.S., headquartered in Pittsburgh, Pennsylvania, with a coast-to-coast retail branch network and strategic international offices in four countries outside the U.S. The company operates through three main business segments: Retail Banking, Corporate & Institutional Banking, and Asset Management Group . PNC offers a wide range of financial products and services, including deposit accounts, lending products, investment management, and advisory services . Revenue is generated from net interest income and noninterest income, with significant contributions from the Corporate & Institutional Banking segment .

    1. Corporate & Institutional Banking - Offers lending, treasury management, capital markets and advisory services, and commercial mortgage banking activities to mid-sized and large corporations, government, and not-for-profit entities. Provides products like secured and unsecured loans, letters of credit, and equipment leases .

    2. Retail Banking - Provides a wide range of products and services, including deposit accounts, lending products such as residential mortgages and credit cards, brokerage, insurance services, investment management, and cash management products. These services are offered through branches, digital channels, ATMs, and phone-based customer contact centers .

    3. Asset Management Group - Focuses on private banking for high net worth individuals and institutional asset management. Provides investment and retirement planning, customized investment management, credit and cash management solutions, and fiduciary services .

    Q3 2024 Summary

    Initial Price$155.94July 1, 2024
    Final Price$179.89October 1, 2024
    Price Change$23.95
    % Change+15.36%

    What went wrong

    • Management expresses uncertainty regarding loan growth, with CEO William Demchak stating he is "befuddled" by persistent low loan utilization rates, and admitting that they have no loan growth factored into projections for record NII in 2025.
    • The bank anticipates additional charge-offs in the CRE office portfolio, acknowledging that lower cap rates may not sufficiently improve valuations for severely under-occupied office buildings, which could significantly impact asset quality.
    • In the C&I loan portfolio, management notes that there are more downgrades than upgrades, driven by margin compression among borrowers, suggesting weakening financial conditions that could lead to higher future credit losses.

    Q&A Summary

    1. Record NII in 2025
      Q: Will you achieve record net interest income in 2025?
      A: We feel confident we'll achieve record net interest income in 2025, and this is not dependent on loan growth.

    2. Net Interest Margin Outlook
      Q: Where will net interest margin normalize?
      A: Our net interest margin is increasing, and we expect it to approach 3% over time.

    3. Loan Growth Expectations
      Q: When will loan growth pick up?
      A: Loan growth has been lower than expected due to low utilization and a pause with the upcoming election and rate environment. We continue to add customers and loan commitments, and we expect loan growth is not too far off.

    4. Deposit Cost Decline
      Q: Will deposit costs decrease soon?
      A: We're in a down beta cycle and expect our terminal beta to be approximately 50%. Rates paid will come down, particularly in higher interest-bearing commercial and wealth deposits.

    5. Office CRE Reserves
      Q: Why are office CRE reserves increasing?
      A: We're just now starting to see buildings clear in sales, and challenges in the office sector will play out over a long period. It's early innings, and we expect it to be noisy for a while.

    6. Acquisition Possibilities
      Q: Are acquisitions likely in this environment?
      A: We don't see value in an acquisition at the moment. Potential targets don't make sense considering their balance sheets and required investments.

    7. Consumer Lending Growth
      Q: What are growth drivers in consumer lending?
      A: We're underpenetrated with existing clients in consumer lending. We see material upside by increasing penetration to match our peers, and we're investing to achieve this.

    8. Capital Markets Outlook
      Q: How is the capital markets pipeline?
      A: Although some fourth-quarter activity shifted into the third, pipelines are strong and momentum continues. We expect some lumpiness quarter-to-quarter but overall positive trends.

    9. Deposit Stabilization
      Q: What's the outlook for noninterest-bearing deposits?
      A: We've stabilized noninterest-bearing deposits over the past couple of quarters at current levels after prior declines. The effect of lower rates on compensating balances is uncertain.

    10. Economic Conditions Impact
      Q: How are clients' demand trends and economic health?
      A: There's a pause in loan demand due to the election and rate environment, but we're seeing constructive signs like increased loan commitments. Companies are healthy, though margin pressures exist due to inability to pass on prices. ,

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Retail Banking3,0243,1503,3603,39112,9253,3814,1183,484
    - Net Interest Income(206)(412)(687)-(2,337)(1,030)(1,101)(1,122)
    - Noninterest Income15932(27)-181(1)(477)49
    Corporate & Institutional Banking2,2692,1702,2252,6059,2692,4082,4732,618
    Asset Management Group357353362381,452387398403
    Residential Mortgage Banking--------
    BlackRock--------
    Non-Strategic Assets Portfolio--------
    Other(47)(380)(714)-(2,156)(1,031)(1,578)(1,073)
    Asset Management and Brokerage356348348361,412137364383
    Capital Markets and Advisory156213168415952190272371
    Card and Cash Management6436976897042,733281706698
    Lending and Deposit Services1812983154391,233171304320
    Residential and Commercial Mortgage429820128462597131181
    Other Income159129942376191733269
    Total Noninterest Income1,7831,7831,8152,1937,5741,8812,1092,022
    Total Revenue5,6035,2935,2335,36121,4905,1455,4115,432
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Americas--------
    Europe--------
    Asia-Pacific--------
    Total Revenue-----5,145--
    KPIs - Metric (Unit)FY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Net outstanding standby letters of credit ($ million)11,01710,15710,32610,913-10,65110,68010,826
    Standby bond purchase agreements ($ million)1,1931,1841,0881,078-1,1941,1671,055
    Commitments to extend credit ($ million)259,828261,905275,372268,391-268,087268,862273,664
    Serviced portfolio balance ($ billion)188191213209-207204200
    MSR asset value ($ billion)2.22.32.82.7-2.72.72.5
    Fair value of commercial mortgage servicing rights ($ million)1,0611,1061,1691,032-1,0751,082975
    Fair value of residential mortgage servicing rights ($ million)2,2322,3492,8372,654-2,6872,6572,528
    Weighted-average life of commercial mortgage servicing rights (years)3.93.94.03.9-3.93.93.8
    Weighted-average life of residential mortgage servicing rights (years)7.77.88.48.1-8.18.17.8
    Weighted-average constant prepayment rate for commercial mortgage servicing rights (%)4.394.385.425.51-5.245.304.41
    Weighted-average constant prepayment rate for residential mortgage servicing rights (%)7.226.915.776.42-6.296.257.21
    Effective discount rate for commercial mortgage servicing rights (%)9.549.8910.229.64-9.949.9810.69
    Weighted-average option adjusted spread for residential mortgage servicing rights (bps)768767765765-766764755

    Executive Team

    NamePositionStart DateShort Bio
    Carole L. BrownExecutive Vice President and Head of Asset Management GroupJuly 2020Carole L. Brown joined PNC in 2019 and was appointed to her current position in July 2020. Previously, she was the Chief Change and Risk Officer for PNC's Asset Management Group and Corporate & Institutional Banking .
    Richard K. BynumExecutive Vice President and Chief Corporate Responsibility OfficerJuly 2020Richard K. Bynum has been with PNC since 2005. He was appointed to his current role in July 2020, after serving as the regional president for PNC's Greater Washington market from 2017 to 2020 .
    William S. DemchakChairman and Chief Executive OfficerApril 2013William S. Demchak joined PNC in 2002 as CFO. He became CEO in April 2013 and Chairman in April 2014. He served as President from April 2012 through February 2024 .
    Kieran J. FallonExecutive Vice President and Chief Risk OfficerFebruary 2021Kieran J. Fallon joined PNC in 2011 and was appointed Chief Risk Officer in February 2021. He previously served as Senior Deputy General Counsel .
    Deborah GuildExecutive Vice President and Head of Enterprise Technology and SecurityDecember 2020Deborah Guild joined PNC in October 2013 and has held roles as Chief Information Security Officer, Chief Security Officer, and Chief Technology Officer before her current position .
    Vicki C. HennExecutive Vice President and Chief Human Resources OfficerJuly 2014Vicki C. Henn joined PNC in 1994 and has held numerous management positions. She was appointed to her current role in July 2014 .
    Gregory B. JordanExecutive Vice President, General Counsel and Chief Administrative OfficerFebruary 2016Gregory B. Jordan joined PNC in 2013 as Executive Vice President, General Counsel, and Head of Regulatory and Government Affairs. He became Chief Administrative Officer in February 2016 .
    Stacy M. JuchnoExecutive Vice President and General AuditorApril 2014Stacy M. Juchno has served as Executive Vice President and General Auditor since April 2014. Previously, she was the Senior Vice President and Finance Governance and Oversight Director .
    Ganesh KrishnanExecutive Vice President and Enterprise Chief Information OfficerNovember 2020Ganesh Krishnan joined PNC in 2008 and has held various technology leadership roles. He was appointed to his current position in November 2020 .
    Michael P. LyonsPresident and Head of Corporate & Institutional BankingFebruary 2024Michael P. Lyons joined PNC in October 2011 as an Executive Vice President. He was appointed President and Head of Corporate & Institutional Banking in February 2024 .
    Alexander E. C. OverstromExecutive Vice President and Head of Retail BankingJuly 2022Alexander E. C. Overstrom joined PNC in 2014 and has held various management positions. He was appointed to his current role in July 2022 .
    E William Parsley, IIIExecutive Vice President and Chief Operating OfficerFebruary 2018E William Parsley, III joined PNC in 2003 and has held various leadership roles. He was appointed Chief Operating Officer in February 2018 .
    Robert Q. ReillyExecutive Vice President and Chief Financial Officer2013Robert Q. Reilly has been with PNC since 1987. He was appointed CFO in 2013 after serving as Head of PNC's Asset Management Group from 2005 until April 2013 .
    Gregory H. KozichSenior Vice President and Controller2011Gregory H. Kozich joined PNC in 2010 and was appointed Controller in 2011. He became Senior Vice President in 2010 .

    Questions to Ask Management

    1. Given the continued stress in your CRE office portfolio, with nonperforming loans increasing due to the migration of criticized loans and expectations of additional charge-offs, how confident are you that your current reserves of 11.3% on the overall office portfolio and 16% on the multi-tenant portfolio are sufficient to cover future losses, and what strategies are you implementing to mitigate these risks?
    2. With noninterest expenses expected to rise by 2% to 3% in the fourth quarter and fee income projected to decline by 5% to 7%, what specific measures are you taking to manage expenses and drive revenue growth to achieve positive operating leverage for the full year?
    3. You've mentioned plans to invest in your retail distribution by building high-volume branches, particularly in the Southwest markets. In an era where digital banking is becoming more prevalent, how do you justify this strategy, and what returns on investment do you anticipate from these branch expansions?
    4. Historically, you've been underpenetrated in consumer lending, especially in credit cards. Despite recent investments and new product introductions, when do you expect to see significant growth and a measurable impact on your consumer lending revenues?
    5. Considering your expectation that the Fed will cut rates twice in 2024 and your projections of achieving record net interest income in 2025 without relying on loan growth, what gives you confidence in these projections amid economic uncertainties, and what key factors are driving this confidence?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateN/A
    End Date/DurationN/A
    Total additional amount100 million shares
    Remaining authorization43% of 100 million shares
    DetailsAllows capital return in excess of SCB minimum levels; flexibility in capital management; cautious approach due to Basel III adjustments

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      • Economic Outlook:
        • Real GDP growth of approximately 2% in 2024.
        • Unemployment slightly above 4% through year-end.
        • Federal Reserve rate cuts: 25 basis point decrease in November and December.
      • Financial Metrics:
        • Average Loans: Stable.
        • Net Interest Income: Up approximately 1%.
        • Fee Income: Down 5% to 7%.
        • Other Noninterest Income: $150 million to $200 million, excluding Visa activity.
        • Total Revenue: Stable.
        • Total Noninterest Expense: Up 2% to 3%.
        • Net Charge-Offs: Approximately $300 million.
      • Operating Leverage: On track for full-year positive operating leverage.
      • Capital Markets and Fee Guidance: Fee income decline driven by elevated MSR levels and capital markets activity .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      • Overall Economy:
        • Real GDP growth of approximately 2% in 2024.
        • Unemployment slightly above 4% by year-end.
        • Federal Reserve rate cuts: 25 basis point decrease in September and December.
      • Third Quarter 2024:
        • Average Loans: Stable.
        • Net Interest Income: Up 1% to 2%.
        • Fee Income: Up 1% to 2%.
        • Other Noninterest Income: $150 million to $200 million, excluding Visa and securities activity.
        • Core Noninterest Expense: Up 3% to 4%.
        • Net Charge-Offs: $250 million to $300 million.
      • Full Year 2024:
        • Average Loans: Down less than 1% compared to 2023.
        • Net Interest Income: Down approximately 4%.
        • Noninterest Income: Up 3% to 5%.
        • Total Revenue: Down 1% to 2%.
        • Core Noninterest Expense: Down approximately 1%.
        • Effective Tax Rate: Approximately 18.5% .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      • Full Year 2024:
        • Average Loan Growth: Approximately 1%.
        • Total Revenue: Stable to down 2%.
          • Net Interest Income: Down 4% to 5%.
          • Noninterest Income: Up 4% to 6%.
        • Core Noninterest Expense: Stable, excluding FDIC assessment.
        • Effective Tax Rate: Approximately 18.5%.
      • Second Quarter 2024:
        • Average Loans: Stable.
        • Net Interest Income: Down approximately 1%.
        • Fee Income: Up 1% to 2%.
        • Other Noninterest Income: $150 million to $200 million, excluding Visa activity.
        • Total Revenue: Stable.
        • Total Core Noninterest Expense: Up 2% to 4%.
        • Net Charge-offs: $225 million to $275 million.
      • Economic Outlook:
        • Real GDP growth of approximately 2%.
        • Unemployment rate increase to 4% by year-end.
        • Federal Reserve rate cuts: 25 basis point decrease in July and November .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      • Spot Loan Growth: 3% to 4%, equating to average loan growth of approximately 1%.
      • Operating Leverage: About 100 basis points negative.
      • Net Interest Income: Down 4% to 5%.
      • Noninterest Income: Up 4% to 6%.
      • Total Revenue: Stable to down 2%.
      • Core Noninterest Expense: Stable, excluding FDIC assessment.
      • Effective Tax Rate: Approximately 18.5%.
      • Credit Metrics: Stress in CRE office portfolio, reserves at 8.7% of total office loans and 12.9% on multi-tenant portfolio.
      • Federal Funds Rate: Unchanged between 5.25% and 5.5% through mid-2024, with a 75 basis points reduction expected.
      • Economic Outlook: Mild recession expected in mid-2024 with GDP contraction of less than 1% .