The conference call for The PNC Financial Services Group was held on January 16, 2023 and was led by Bryan Gill, the Director of Investor Relations. PNC's Chairman, President, and CEO, Bill Demchak, and Executive Vice President and CFO, Rob Reilly, also participated. The presentation contained forward-looking information and cautionary statements were included. PNC performed well in 2023 despite a challenging operating environment for the banking industry. They grew their customer base, generated record revenue, and controlled expenses. In the fourth quarter, they reported $883 million in net income or $1.85 diluted per share and $3.16 per share on an adjusted basis. The acquisition of capital commitment loans from Signature, which was completed in October, was immediately accretive to earnings.

In the fourth quarter, the company saw growth in non-interest income, completed workforce reductions to save on expenses, maintained strong credit quality, and increased capital position. The company remains focused on delivering through the cycle performance and is well positioned for future growth and shareholder value. The balance sheet shows an increase in loans and cash balances, while investment securities declined and deposits increased.

In the third quarter, P&C saw an increase in borrowed funds and remained compliant with holding company debt requirements. AOCI improved due to favorable interest rate movements and tangible book value increased. The bank is well capitalized and has resumed share repurchase activity. Loan balances increased 2%, driven by higher commercial loans and modest growth in consumer loans. The acquisition of the Signature capital commitment portfolio contributed to the increase in commercial loans, while consumer loans saw growth in residential mortgages but declines in home equity and credit card balances.

In the fourth quarter, loan yields increased and average deposits grew, with a decline in consumer deposits. The non-interest bearing portion of deposits is expected to stabilize. The rate paid on interest bearing deposits also increased and is expected to continue to rise until a forecasted rate cut in 2024. The investment securities portfolio decreased, but the yield increased due to the runoff of lower yielding securities. The swap portfolio also increased in yield and the duration was 2.3 years. AOCI improved due to lower interest rates and is expected to continue to improve as lower rate securities and swaps roll-off.

The income statement for the fourth quarter of 2023 showed a net income of $883 million, or $1.85 per share, including non-core expenses related to the FDIC special assessment and workforce reduction charges. Adjusted EPS was $3.16. Total revenue increased by $128 million, with a decline in net interest income and an increase in non-interest income. Non-interest expense increased by $829 million, but core non-interest expense was well controlled. The provision was $232 million and the effective tax rate was 16.3%. For the full year, revenue grew by 2%, while core non-interest expense only grew by 1%. Revenue trends showed an increase in fee income, driven by strong capital markets and advisory fees, and growth in asset management and brokerage revenue. Residential and commercial mortgage revenue declined due to a decrease in the valuation of net mortgage servicing rights.

In the fourth quarter, PNC saw an increase in non-interest income, with a significant portion coming from favorable valuation adjustments and gains on sales. However, there was also a negative adjustment related to Visa shares. Non-interest expense also increased, driven by non-core charges and building write-offs. The company has implemented cost-saving measures and exceeded their CIP goal for the year. Credit quality remained strong overall, but there was a slight increase in non-performing loans and delinquencies.

In the fourth quarter, PNC saw an increase in non-performing loans and delinquencies, mostly due to higher consumer delinquencies. Net loan charge-offs were at the low end of expectations, and the allowance for credit losses remained stable. The CRE office portfolio continues to be a source of stress, but the bank believes it has adequately reserved for potential losses. The overall CRE office portfolio declined, but will continue to be monitored. PNC had a strong fourth quarter and full year, and expects a mild recession in mid-2024 with a slight decrease in GDP. The federal funds rate is expected to remain unchanged until mid-2024, when the Fed may begin to cut rates. PNC's outlook for 2024 is positive compared to 2023.

The company expects spot loan growth of 3% to 4% and average loan growth of 1% for 2024. Total revenue is expected to be stable or slightly down, with net interest income down 4% to 5% and non-interest income up 4% to 6%. Core non-interest expenses are expected to be stable and the effective tax rate to be around 18.5%. For the first quarter of 2024, average loans are expected to be stable, net interest income down 2% to 3%, and fee income down 6% to 8% due to seasonal factors. Total core non-interest expenses are expected to be down 3% to 4%. The company anticipates net charge offs of $200 million to $250 million in the first quarter. The expected loan growth is mainly driven by commercial loans, with modest growth in consumer loans throughout the year. The net interest income guidance assumes three rate cuts, slightly lower than the forward curve.

A question was asked about the sensitivity of the forward curve and its potential impact on NII. The speaker responded that it would be relatively neutral due to the bank's efforts to balance its sensitivity position. They also mentioned the importance of deposit pricing in the future. Another question was asked about the capital markets revenue, and the speaker explained that they expect it to follow a similar trend as the fourth quarter and first quarter of 2023. They also mentioned that the revenue is expected to increase by about 20% year-over-year.

During a recent earnings call, analysts asked PNC executives about their guidance for 2024 and the potential impact of the rate environment on their operating leverage. PNC's executives stated that they are fairly neutral to rate cuts and have taken actions to keep expenses stable. They also believe that their NII (net interest income) is fairly predictable, but any variance may come from deposit betas and the steepness of the yield curve. When asked about the bottom and potential rebound of NII, the executives stated that they are conservative in their assumptions and feel good about their forecast. They also mentioned that NII could potentially reach record levels in 2025.

Bill Demchak, CEO of the company, predicts that NII (net interest income) will decrease in the first half of the year due to interest rate cuts, but will then gradually increase again. He also expects deposit costs to decrease around the same time. Loan growth is expected to be back-end loaded, with an increase in CNI (commercial and industrial) loans in the third and fourth quarter after a mild recession mid-year.

The expected increase in utilization and general economic activity will lead to slow but steady growth in consumer credit, with more growth in card and auto loans and less in residential loans. The bank believes it has properly reserved for potential charge-offs, but the outcome of maturing loans is yet to be seen. Commercial loan growth was down slightly in the quarter, but the bank sees prospects for growth in 2024. There is some competition from private credit markets, but the key number to watch is the percentage of criticized loans.

In this paragraph, Bill Demchak and Rob Reilly discuss the relationship between PNC and private equity firms. Demchak explains that while they do have some competition with these firms in certain lending markets, they primarily serve them as clients. Reilly adds that PNC's ownership of Visa shares could potentially be monetized in the future, depending on a vote by Visa shareholders.

Bill Carcache asks Rob Reilly and Bill Demchak about their reserve levels and potential future scenarios. Reilly states that their reserves are appropriate and could potentially be released if things improve. Carcache then asks about the lag between charge-offs and reserve releases in a mild recession scenario, to which Demchak clarifies that charge-offs do not hit the P&L and reserves are fully provided for in their scenario. Carcache understands.

The speaker discusses the potential impact of a deteriorating credit environment on the company's reserves and the timing of potential charge-offs. They also mention the potential impact of the Basel III endgame on the company's capital return plans and the possibility of relief in certain asset categories and risk weighted assets.

The speaker is discussing the uncertainty around the future of the company's net interest income (NII) and their plans to continue growing earnings. They mention the possibility of using share repurchases and address a question about the impact of interest rate cuts on their NII. The speaker explains that while the company's fixed rate swaps don't mature until 2024, there could still be a lower trough in NII in 2024 and a record NII in 2025 due to those swaps and potential changes in the liability and deposit repricing.

In the paragraph, Bill Demchak discusses the company's fixed rate assets and their impact on net interest income. He mentions that the company purposely drew a thick line for their guidance due to uncertainty about when a trough might occur. He also highlights the steepness of the curve and the potential for a big pickup in fixed rate earning yields. Erika Najarian asks about the company's ability to reach a record net interest income, to which Demchak responds that the "Swoosh" (the company's projected growth trajectory) is still accurate. In a follow-up question, Ken Usdin asks about changes in the company's swaps book.

The interviewer asks the CEO and CFO about any changes made to the company's portfolio and the outlook for fee growth. The executives state that they terminated some swaps and added new ones, but it was all in the normal course. They also mention a rebound in capital markets activity and expect a 20% growth in pipelines. Other fee categories are expected to have varying levels of growth or decline.

In 2023, the company reduced overdraft charges for clients and saw a decrease in mortgage gains. During a conference call, CEO Bill Demchak emphasized the increasing importance of scale in the banking industry, citing the recent trend of larger banks gaining organic deposit share. He also mentioned the impact of technology and changes in regulations on the industry.

Bill Demchak believes that the mini crisis has benefited his company, but not by much. He wants his company to be seen as a strong partner and a ubiquitous standard brand across the country. He believes that through organic growth and potential consolidation in the industry, his company can achieve this. If not, they will focus on executing their current strategies to continue growing.

The speaker believes that they will pursue inorganic opportunities for a longer period of time, and they are confident in their ability to execute on their own. They also mention that scale matters and they will not have to chase opportunities. The speaker addresses concerns about potential deals and states that they will not do anything foolish in pursuit of consolidation. They also mention the need for consolidation in the industry and the potential for regulatory and political awareness. The speaker is asked about the regulatory environment and whether it is conducive for M&A activity.

Bill Demchak, CEO of PNC Financial Services, believes that there is no simple answer to the question of whether certain mergers will be approved or not. He also believes that certain deals will be seen as good or bad depending on various metrics. Demchak also states that PNC has proven to be a strong acquirer and that the resulting institution is stronger than the one acquired. In regards to the mild recession, Demchak believes it is not a concern in terms of customers and is based on the weakening economy and tight monetary policy. He also expects employment to remain strong and consumer spending to keep the economy from going into a deep recession.

The speaker discusses the possibility of a slowdown leading to a recession without increasing credit risk. They also mention that non-interest bearing deposits may stabilize due to long-standing relationships with customers. In response to a question about medium-term loan growth, the speaker does not believe there will be structural deleveraging from customers, but rather from certain banks.

The speaker discusses how higher interest rates may impact loan growth, stating that the bank's generic corporate clients may need to pay more for facilities. However, the bank's composition is mostly made up of typical American clients, so loan growth is not expected to decline. The speaker also mentions that the bank plans to retain more capital and potentially limit buyback activity in order to be better positioned for potential M&A opportunities.

During a recent earnings call, PNC CEO Bill Demchak discussed the company's expected growth and capital return plans. He stated that their growth may be impacted by compliance and regulatory changes, and that their buyback activity may remain muted due to uncertainty. Demchak also mentioned their deposit betas and commercial loan growth, attributing their success to their efforts to gain market share and win pitches.

The company has been winning in new markets due to higher loan growth and fully staffed teams. They are not leading with credit in these markets and fee-based growth is outpacing loan-based growth. The presence of private capital competitors may impact margins and potentially result in losing clients to leverage lenders. The company is considering locking in yields on their growing deposits at the Fed, but is also factoring in their expectations of rates peaking, a mild recession, and loan growth.

Bill Demchak believes that the market is currently overvalued and is staying neutral until there is more clarity on inflation and Fed actions. He expects little action in longer rates due to supply and inflation concerns. Demchak also discusses the competition from private credit for loans and the need to balance maintaining returns with increasing capital requirements. He emphasizes the importance of client relationships and fees rather than just lending money for the sake of it.

The speaker discusses the current state of private credit, noting that it is seeing a return due to the ability to leverage it and the lack of opportunities in private equity. However, they do not see it as a great investment in the long term and do not try to compete with it. The call ends with the speaker thanking participants and inviting follow-up questions.

This summary was generated with AI and may contain some inaccuracies.