Sign in

    PNC Financial Services Group Inc (PNC)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$149.56Last close (Apr 15, 2024)
    Post-Earnings Price$147.18Open (Apr 16, 2024)
    Price Change
    $-2.38(-1.59%)

    What went well

    • PNC expects Net Interest Income (NII) to trough in Q2 and grow thereafter, driven by the repricing of fixed-rate assets, leading to improved NII in the second half of the year.
    • PNC has reiterated that 2025 Net Interest Income will reach a record level, indicating strong future earnings potential, with the only significant risk being a massive curve inversion causing lower yields.
    • PNC is successfully managing expenses, achieving $750 million of cost savings for 2024, already ahead of expectations in the first quarter, projecting stable expenses year-over-year, potentially leading to positive operating leverage.

    What went wrong

    • Lower loan utilization rates are impacting loan growth, as customers pay down revolving credit lines due to access to alternative funding sources in the public markets and hesitancy among manufacturers, leading to expectations of only modest loan growth.
    • Achieving positive operating leverage for the full year is "pretty tough" due to net interest income and rate issues, indicating challenges in revenue growth compared to expenses.
    • The biggest risk to achieving record net interest income in 2025 is a massive yield curve inversion or significant rate decline, which could impact the repricing of fixed-rate assets at lower yields, potentially jeopardizing future earnings targets.

    Q&A Summary

    1. Net Interest Income Outlook
      Q: Will NII improve after troughing in Q2?
      A: Management expects NII to trough in the second quarter and then grow, driven primarily by the repricing of fixed-rate assets as rates settle down. Loan growth will contribute but isn't expected to be significant.

    2. 2025 Record NII Expectation
      Q: Do you still expect record NII in 2025?
      A: Yes, management reiterates that 2025 will be a record year for NII. The largest risk to this outlook would be a significant curve inversion resulting in lower yields when repricing fixed-rate securities, but current assumptions keep them on track.

    3. Loan Growth and Economic Risks
      Q: Could higher rates and no rate cuts lead to economic decline and impact loan growth?
      A: Management acknowledges the possibility that "higher for longer" rates could tip the economy into recession, which could impact loan growth. However, they believe a soft landing is still the base case, and utilization rates could even increase if credit conditions tighten.

    4. Credit Quality in Commercial Real Estate
      Q: Are you seeing stress in CRE, specifically office, and how are you provisioning?
      A: The pressure is in the CRE book, particularly the office sector. They've prudently added to the office reserve with no surprises in credit migration. Reappraisals have shown declines much higher than 15%, in some cases up to 30%-40% or more. They feel well-reserved and ahead of the issue.

    5. Capital Management and Visa Proceeds
      Q: How are you thinking about capital build and use of Visa B shares proceeds?
      A: They plan to gradually build capital from current levels, considering potential regulatory changes like Basel III endgame. On May 3, they can monetize 50% of their Visa B shares, representing about $800 million in unrealized gains, and will consider how to apply this excess capital when received.

    6. Expense Management and Operating Leverage
      Q: Can you achieve positive operating leverage this year given expense control efforts?
      A: Achieving positive operating leverage for the full year is challenging due to NII and rate issues, excluding any Visa gains. However, they feel good about expenses, projecting stable expenses year-over-year and are off to a good start realizing benefits from cost-saving actions.

    7. M&A Outlook
      Q: Do you see bank M&A activity picking up before elections?
      A: Management believes most banks are likely to hold off on M&A in the near term as their earnings are expected to improve with normalizing rates. Significant deal-making is unlikely before the elections.

    8. Fee Income and Capital Markets
      Q: How is the outlook for capital markets and fee income growth?
      A: They are maintaining an expectation of 20% growth in capital markets fees year-over-year. While the first quarter was softer compared to an elevated fourth quarter, a strong pipeline, particularly at Harris Williams, suggests improvement in the coming quarters.

    9. Asset and Wealth Management Growth
      Q: Any updates on asset and wealth management growth?
      A: The business is performing well, supported by equity markets. They've successfully repositioned in the market, seeing asset inflows and new business wins, especially in the Southwest markets from the BBVA acquisition where wealth management services are newly introduced.

    10. Impact of Rates on Other CRE Sectors
      Q: Will higher rates impact other areas of commercial real estate?
      A: Higher rates may affect other CRE sectors at the margin as debt service coverage ratios decline with rising interest costs. However, these assets are generally cash-flowing, unlike many office properties, so the impact is expected to be limited.

    Related Publications