Q4 2024 Earnings Summary
- PNC expects deposit growth of 1% to 2% in 2025, and is successfully growing deposits in expansion markets, with strong DDA growth.
- PNC has strong capital ratios that are expected to continue to build off already high levels, despite sluggish loan growth and share buyback assumptions, indicating financial strength and the ability to return capital to shareholders.
- PNC has a strong position in asset-backed lending with limited competition, as entering this business requires significant operational capabilities, making it difficult for new entrants.
- Uncertainty in Loan Growth Prospects: PNC executives expressed uncertainty regarding future loan growth, noting that loan utilization rates are lower across all subsegments, including small commercial, middle market, and specialty businesses. They admitted that they are not forecasting significant loan growth and are unsure when it might occur, which could impact net interest income growth.
- Increased Competition from Private Credit: The rise of private credit funds is leading to heightened competition for lending opportunities. PNC acknowledges that while they haven't lost desired deals, they are facing situations where they cannot compete on terms offered by private credit providers. This competition at the margin could pressure loan volumes and pricing.
- Average Online and Mobile Banking Experience: PNC's online and mobile banking offerings are currently only average, as admitted by their executive, which may affect customer satisfaction and competitiveness. While they are investing to improve, the need to catch up may require significant resources and time, potentially impacting profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3.8% (from $5,361M to $5,567M) | Total revenue increased modestly driven by improved net interest income and fee-based revenues compared to the prior period, reflecting enhancements in lending and investment performance along with recovering client activity. |
Operating Income | +80% (from $1,055M to $1,905M) | Operating income surged dramatically due to strong fee income growth and effective cost controls that sharply lowered noninterest expense, which more than compensated for any pressures on net interest income compared to Q4 2023. |
Net Income | +84% (from $883M to $1,627M) | Net income improved significantly as the combined benefits of increased fee-related revenues and expense management led to a robust rise in profitability relative to the previous quarter. |
EPS | +104% (from $1.85 to $3.77) | EPS more than doubled driven by the marked improvement in net income and solid operational performance, underpinned by lower costs and a favorable revenue mix compared to Q4 2023. |
Asset Management Group | +1,000% (from $38M to $413M) | Asset Management Group revenue soared due to a substantial increase in fee-based income, reflecting higher client asset inflows and improved market conditions that boosted valuations and fee collections over the past year. |
Asset Management and Brokerage | +1,600% (from $36M to $601M) | Asset Management and Brokerage experienced remarkable growth driven by higher average equity market performance and significant increases in discretionary client assets under management, resulting in strong fee collections compared to Q4 2023. |
Capital Markets and Advisory | -87% (from $415M to $55M) | Capital Markets and Advisory revenue plummeted as reduced trading volumes, softer M&A activity, and lower underwriting fees—likely impacted by market volatility and changing economic conditions—led to a drastic decline relative to the previous year. |
Lending and Deposit Services | Reversed from positive to negative (exact figures not given) | Lending and Deposit Services reversed to negative territory, indicating declining customer activity and potential pressure from higher interest rates or competitive challenges that adversely affected revenue compared to Q4 2023. |
Residential & Commercial Mortgage | Reversed from positive to negative (exact figures not given) | Residential & Commercial Mortgage revenue turned negative as lower mortgage banking activities outweighed gains from improved mortgage servicing rights valuations, reflecting shifts in market conditions and customer behavior compared to the prior year. |
Cash Flow | Net change of $5,065M | Cash flow strength improved as evidenced by a net cash change of $5,065M, underlining solid operating performance and disciplined capital allocation, which enhanced liquidity and bolstered the balance sheet compared to Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Loan Growth | Q4 2024 | no prior guidance | stable | no prior guidance |
Net Interest Income (NII) | Q4 2024 | no prior guidance | up approximately 1% | no prior guidance |
Fee Income | Q4 2024 | no prior guidance | down 5% to 7% | no prior guidance |
Other Noninterest Income | Q4 2024 | no prior guidance | $150M to $200M, excluding Visa activity | no prior guidance |
Total Revenue | Q4 2024 | no prior guidance | stable | no prior guidance |
Noninterest Expense | Q4 2024 | no prior guidance | up 2% to 3% | no prior guidance |
Net Charge-Offs | Q4 2024 | no prior guidance | $300M | no prior guidance |
Operating Leverage | FY 2024 | no prior guidance | on track for full-year positive operating leverage | no prior guidance |
Federal Reserve Rate Cuts | FY 2024 | no prior guidance | two additional 25 bps cuts in Nov & Dec 2024 | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Loan growth and utilization | Repeated concerns about soft loan demand, low utilization, and flat balances. Executives noted a “pause” (Q3), expressed caution (Q2), and expected modest pick-up (Q1). | Minimal loan growth and lower utilization despite strong originations. PNC remains conservative in projections. | Consistently cautious, with persistently low utilization and no major rebound yet. |
Net Interest Income (NII) | Previously noted a decline in Q1, then a turnaround in Q2, and further +3% growth in Q3, targeting record NII in 2025. | Up 3% to $3.5B, guided +6–7% for 2025, driven by asset repricing and stable deposit costs. | Improving sentiment quarterly and reaffirmation of record NII trajectory. |
Deposit growth | Q3 saw a $5B growth and peaking deposit rates, Q2 deposits were stable, Q1 deposits declined 1% on average but rose on a spot basis. | Increased by $3B (1%), with stable noninterest-bearing deposits at $96B; deposit rates moving lower due to Fed cuts. | Stable to modestly growing deposits, pricing beginning to ease. |
Commercial Real Estate (CRE) office exposure | Gradual reduction each quarter, with reserves rising from ~9.7% to 11–11.3% before Q4. Consistent stress noted each quarter. | Balances down 7% and net charge-offs lower ($62M), reserves 13%. Still stress in office. | Ongoing cautious stance but continuing portfolio shrinkage. |
Consumer lending and credit card penetration | Focus on underpenetration in credit cards (Q3, Q2), with new products introduced. Q1 only noted $600M decline in consumer loans. | No specific mention beyond flat consumer loan balances (~$100B). | Shifted focus away from explicit credit card updates this quarter, remains an opportunity. |
Asset-backed lending | Q3: Benign trends but slight downgrades. Q2: One secured loan drove higher NPLs. No Q1 mention. | Competes with traditional lenders, requires large ops presence, limited new details. | Stable mention, no major new developments. |
Competition from private credit | Q3: Not driving low utilization, Q1: minimal impact. No Q2 mention. | Not a major factor, partnership with TCW to retain clients; doesn’t explain low loan growth. | Reiterated that it’s not a big concern. |
Digital banking experience | No prior mentions in Q3, Q2, Q1. | Rolling out new online platform, aims for cloud-native capabilities and faster product updates. | Newly highlighted investment in digital capabilities. |
Capital ratios and share buybacks | CET1 hovered ~10.1–10.3%, with share repurchases each quarter. Plans varied from $100M–$200M. | CET1 10.5% (9.2% w/AOCI). Repurchased $200M shares; remains flexible with capital. | Consistent capital strength and steady buyback pace. |
Operating leverage and expense management | Q3: 3rd consecutive quarter of positive leverage, Q2: positive in the quarter but full-year negative. Q1: Struggling to achieve full-year positive leverage. | Positive op leverage for 2024, expects substantial leverage in 2025 with expense growth of only 1%. | Trend has improved, with strong cost discipline fueling positive leverage. |
Margin compression in C&I | Q3: Margin compression cited as cause of some downgrades; Q1: impacted by lower utilization and higher funding costs. No Q2 mention. | Not explicitly detailed but hinted at lower utilization and higher costs. | Occasional concern, no direct Q4 comment but implied by low utilization. |
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Loan Growth Outlook
Q: What's causing the lack of loan growth?
A: Utilization is lower across all subsegments due to total cost and uncertainty. We're growing clients and commitments, but without visibility on when demand will pick up, we're being conservative and not forecasting loan growth numbers. -
Net Interest Margin Guidance
Q: Can you achieve 3% NIM by year-end?
A: Yes, we expect NIM to continue increasing through 2025 and approach 3% by the end of the year. We've approached that level in the past and find it logical to assume we'll get close to it again. -
Net Interest Income Drivers
Q: How will NII grow over the year?
A: Our full-year NII guidance is conservative, assuming stable average loans and spot loans up 2-3%. NII will be down 2-3% in Q1 due to fewer days and seasonal deposit declines but is expected to grow 6-7% for the year as fixed-rate assets reprice. -
Asset Quality and Reserves
Q: What's the outlook for office portfolio reserves?
A: We're adequately reserved for the office portfolio. While there are some moving parts, outstandings are coming down, and charge-offs decreased in Q4. We remain cautious due to a lack of a stabilized market but expect more charge-offs as we work through it. -
Fee Income Growth
Q: What drives the 5% fee income growth outlook?
A: We expect asset management fees up mid-single digits, capital markets and advisory fees up mid-to-high single digits, and card and treasury management fees up mid-to-high single digits. Mortgage fees are expected to decline about 10%, but it's a small component. -
Liquidity Management
Q: Are you leaving money on the table by keeping liquidity at the Fed?
A: If we were certain there'd be no loan growth, we'd redeploy cash for higher yields. There's interplay not reflected in our guidance; we remain optimistic about loan demand and may adjust our liquidity position accordingly. -
Capital Return
Q: Can you sustain $200 million in quarterly buybacks?
A: Yes, we plan to continue repurchasing shares at $100-$200 million per quarter, even if loan growth picks up from our conservative expectations. This level is sustainable and aligns with our capital strategy. -
Hedging Strategy
Q: How are you using forward starting swaps?
A: We're using forward starting swaps to lock in rates on maturing fixed-rate assets, ensuring stability in our NII. We'll continue this strategy into 2026 and 2027 as opportunities arise, providing a buffer against rate movements. -
Expense Growth and Investment
Q: Is 3% expense growth a sustainable run rate?
A: Yes, expenses up 3% is typical and reflects our investments in new branches, technology, and data centers to accelerate organic growth. These are strategic investments aimed at generating future returns. -
M&A Opportunities
Q: What's the outlook for transformational M&A?
A: While it's possibly easier to get deals approved now, everyone wants to be an acquirer and no one is selling. Structural issues suggest consolidation is logical, but we don't see opportunities currently and won't force an outcome.