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    PNC Financial Services Group Inc (PNC)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$169.02Last close (Jul 15, 2024)
    Post-Earnings Price$168.75Open (Jul 16, 2024)
    Price Change
    $-0.27(-0.16%)

    What went well

    • PNC increased its expense savings target for 2024 from $425 million to $450 million, demonstrating strong expense discipline.
    • The company expects to achieve record Net Interest Income in 2025 without needing further restructuring, reflecting confidence in their growth trajectory.
    • PNC is enhancing its credit card offerings to improve penetration among existing clients, capitalizing on being underpenetrated relative to industry averages, presenting a significant growth opportunity.

    What went wrong

    • PNC is experiencing subdued loan growth, and management has muted its loan growth assumptions for the second half of the year due to a lack of evidence of growth, which could impact future net interest income.
    • Increased charge-offs in the CRE office portfolio are expected to continue, with $106 million in net charge-offs during the second quarter and anticipation of additional charge-offs, pointing to potential ongoing credit issues in this segment.
    • Despite initiatives to improve net interest income and expense control, PNC is still guiding to negative operating leverage for 2024, indicating that earnings growth may be constrained even with positive factors like an improving net interest margin.

    Q&A Summary

    1. NII Outlook and Loan Growth
      Q: Why is NII guidance higher despite lower loan growth?
      A: Management expects higher NII even without loan growth due to positive deposit dynamics and benefits from securities restructuring. They have muted loan growth assumptions but are confident in achieving their NII goals without further restructuring.

    2. Loan Growth Expectations
      Q: What's causing subdued loan growth, and when will it improve?
      A: Despite winning clients at a strong pace, loan growth remains muted as customers are not drawing on lines. Factors include higher costs of holding inventory due to elevated interest rates and economic uncertainty. Management has removed loan growth from guidance until they see concrete evidence of improvement.

    3. Capital Deployment and Buybacks
      Q: Will buybacks accelerate given strong capital levels?
      A: They plan to continue buybacks at the current pace of $100 million per quarter. If loan growth doesn't materialize and excess capital continues to build, they might consider accelerating buybacks in the future.

    4. Deposit Pricing and Trends
      Q: How will deposit rates and levels trend from here?
      A: Deposit rates paid are expected to drift up only slightly, by a handful of basis points. Deposits are anticipated to be stable to down, with an emphasis on stability.

    5. Asset Quality and CRE Exposure
      Q: Are there concerns about credit quality, especially in CRE?
      A: Asset quality remains stable with adequate reserves. The increase in nonperforming loans is expected and primarily due to office commercial real estate. They've thoroughly reviewed their CRE portfolio and are not surprised by any developments.

    6. NIM Expectations
      Q: Can NIM reach 3% next year even with rate cuts?
      A: While not providing specific NIM guidance, management believes returning to a 3% NIM is reasonable in a normal environment. They expect NIM to increase into 2025.

    7. Expense Guidance and Cost Savings
      Q: Why is expense growth expected despite cost savings?
      A: Expenses don't occur uniformly throughout the year, and the second half includes investments coming online, such as technology expenses. Even with increased cost savings goals, they anticipate expenses growing due to these planned investments.

    8. Forward Starting Swaps and NII Recovery
      Q: How do forward starting swaps impact NII in 2025?
      A: The $18 billion in forward starting swaps lock in higher rates, increasing the certainty of NII recovery in 2025. This move secures some of the anticipated benefit and provides more certainty around future earnings.

    9. Credit Card Strategy
      Q: What's the plan for new credit card offerings?
      A: They aim to offer better credit card products to existing clients, improving technology and service levels. The goal is to achieve fair share penetration in consumer lending without changing credit standards.

    10. Fee Income Expectations
      Q: What's driving the softer fee income outlook?
      A: Lowered fee income expectations are due to continued softness in mortgage revenues and reduced loan-related fees from decreased loan syndication activity. Other fee categories remain on schedule.

    11. Impact of FedNow
      Q: Will FedNow affect PNC's payments business?
      A: Management does not expect FedNow to impact PNC materially. They already offer real-time payments through existing networks, and FedNow doesn't add or subtract from their opportunities.

    12. Visa Stake Plans
      Q: What's the plan for the remaining Visa stake?
      A: The remaining Visa shares are subject to Visa's schedule and litigation outcomes. They will monitor the situation but don't control the timing of monetization.

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