The PNC Financial Services Group held their earnings conference call, with CEO Bill Demchak and CFO Rob Reilly discussing the company's first quarter results. Despite the FDIC special assessment, the company generated $1.3 billion in net income and added new customers and deposits. They are focused on investing in their franchise to drive growth and gain market share.

The company announced a $1 billion investment in their branch network and reported stable credit quality and expenses during the first quarter. They also emphasized their strong liquidity and capital position. The company launched a new brand campaign and thanked their employees. The balance sheet showed a decrease in loans and investment securities.

In the third quarter, the company's cash balances at the Federal Reserve increased by $6 billion, reaching $48 billion. Deposit balances saw a decline of $4 billion due to lower commercial deposits, but on a spot basis, they were up $4 billion. Borrowed funds also increased by $3 billion. The company's tangible book value increased by 11% compared to the previous year, and they remain well capitalized with an estimated CET1 ratio of 10.1%. Share repurchases and common dividends resulted in $759 million returned to shareholders. Loan balances decreased by 1%, driven by lower commercial loan balances, and the company expects utilization rates to increase throughout the year.

In the first quarter, CNIB saw a decline in consumer loans but an increase in loan yields. Their investment portfolio decreased slightly but the yield increased. The duration of their securities and swap portfolio is four years and two years, respectively. 13% of their portfolio is scheduled to mature by the end of 2024, allowing for reinvestment into higher yielding assets. Deposits decreased slightly, with a decline in commercial deposits but stability in non-interest-bearing deposits. This gives CNIB confidence that their non-interest-bearing deposits have stabilized.

The bank's rate paid on interest-bearing deposits increased to 2.6% in the first quarter, and they expect some potential increase leading up to a Fed rate cut in July. Their net interest income and margin declined due to higher funding costs, but they are well positioned for the future. Their first quarter net income was $1.3 billion, with adjusted EPS at $3.36 per share. Total revenue decreased by 4%, and non-interest expense decreased by 18%, but core non-interest expense only decreased by 6%.

In the first quarter, our provision was $155 million, our effective tax rate was 18.8%, and our revenue decreased by $216 million or 4%. This was mainly due to lower net interest income and a seasonal decline in fee income. Our core non-interest expense also decreased by $205 million or 6% compared to the previous quarter, and by $117 million or 4% compared to the first quarter of 2023, reflecting strong expense management and previous expense actions.

The company has implemented expense management actions that will result in $750 million in cost savings by 2024. These actions include a workforce reduction and a continuous improvement program. The company remains focused on managing expenses and is confident that expenses will remain stable. Credit quality has remained resilient overall, but there has been pressure in the commercial real estate office sector. Non-performing loans have increased, but delinquencies have decreased. Net loan charge-offs were $243 million in the first quarter, and the allowance for credit losses remains stable. The company expects continued charge-offs in the commercial real estate office portfolio, but believes they are adequately reserved for them.

PNC reported a solid first quarter in 2024, with reserves on the office portfolio at 9.7% and a decline in balances. They are expecting economic expansion in the second half of the year with a 2% GDP growth and a modest increase in unemployment. The Fed is expected to cut rates twice in 2024. For the second quarter, they expect stable average loans and a 1% decrease in net interest income. Total revenue is expected to be stable. Non-interest expense is expected to increase by 2-4%. Net charge-offs in the second quarter are estimated to be between $225 million and $275 million. PNC owns 3.5 million Visa class B shares with an unrecognized gain of $1.6 billion. Their full year 2024 guidance remains unchanged from their January earnings call, with expected loan growth of 1% and stable to 2% decrease in total revenue compared to 2023.

The company expects net interest income to decrease by 4-5% and non-interest income to increase by 4-6%. Non-interest expenses are expected to remain stable and the affected tax rate is estimated to be 18.5%. The CEO and CFO are available for questions. The first question is about the expected trajectory of NII, which is expected to improve in the second half of the year due to repricing of fixed rate assets and some loan growth.

The utilization rates for loans have decreased in the first quarter, possibly due to the high liquidity in the public markets. The company's expenses have come in better than expected, possibly due to their cost-saving efforts, but they are still planning for stable expenses for the full year. The first quarter has been a good start in realizing expense actions and a CIP program.

On Slide 6, the speaker discusses the decline of fixed rate securities and swaps. They mention that it is early in the year to see the full impact of this decline, but they are off to a good start and well positioned for stability. They also mention adding to the office reserve in response to commercial real estate stress, but state that there is no systematic issue in the C&I book. They also note that there have been no surprises in the migration of the office book.

The speaker is discussing the potential impact on revenue from changes in interest rates. They mention a crude estimate of a $2 billion impact and explain that it is difficult to accurately predict due to uncertainties surrounding the actions of the Federal Reserve. They also mention the tradeoff between higher rates on fixed assets and potential slower deposit repricing if the Fed maintains rates.

The paragraph discusses the longer term outlook for the repricing of fixed rate assets and deposits, with the CEO and CFO reiterating their view that 2025 will see record levels of net interest income. The only potential risk to achieving this would be a significant curve inversion, but the executives remain confident in their forecast. The CFO also notes that the utilization of C&I loans was lower in the first quarter, which is unusual and may indicate a potential slowdown in loan growth.

The speaker believes that the uncertainty in the market and the availability of other lenders, such as private and public credit markets, have led to a decrease in utilization of credit lines. Additionally, there is hesitancy among manufacturers due to the current state of the economy. The speaker also mentions that there have been significant declines in appraised property values, with some properties seeing a decrease of more than 20%.

The speakers are discussing the variance in losses on loans and the potential for a 30-40% decrease in office values. They also mention that the largest driver of growth in the back half of the year will be repricing and loan growth, and they expect deposits to decline slightly. They also mention that they will replace securities with similar assets at similar yields.

The analyst asks about PNC's loan growth outlook for the remainder of the year, taking into consideration the potential impact of the Fed's "higher for longer" stance on interest rates. PNC's CEO and CFO respond that they are not overly concerned about short-term rate movements and that their NII forecast is not sensitive to rate changes. They also mention that the repricing of fixed rate assets will likely offset any potential deposit cost leakage. The analyst then asks about the potential for a recession and PNC's CEO and CFO share that they are not seeing any major concerns from their banker clients.

In response to a question about the possibility of a recession and the impact it could have on loan growth and credit losses, William Demchak expresses concern but believes a soft landing is the most likely outcome. He also discusses his advocacy for bank mergers and the possibility of an increase in deal making before the November elections. He believes the banking industry is set up to do well in the near term due to rising interest rates, but cautions against real estate concentrations.

Bill Carcache asks about the potential for a reacceleration in loan growth, given the current soft loan demand and utilization rates. He also mentions the potential hindrance of the Fed's inability to cut rates amidst sticky inflation.

The speaker discusses the relationship between Fed funds and CPI and its impact on loan growth. They also mention the potential use of proceeds from the sale of Visa B shares. A question is asked about the dollar amount and use of proceeds, and the speaker clarifies that 50% of their holdings will be monetized. Another question is asked about the use of excess capital, and the speaker responds that they will wait until they have the capital to make a decision. The speaker also mentions that they will monetize half of their 1.6 holdings. A question is then asked about the potential impact on loan growth, and the speaker responds that it is ultimately driven by the economy and its strength.

The company's fee growth is expected to be at 20% despite a slow start in the first quarter due to the larger pipeline in the Harris Williams division. The company's asset and wealth division has seen success in bringing in new assets, but further growth may be a challenge.

The business is doing well with the support of the equity markets, and the growth opportunity lies in the new BBVA markets in the southwest where they are up and running with teams and experiencing asset inflows. The company plans to focus on organic growth in this area rather than pursuing acquisitions. They have achieved $750 million in cost savings for the year, but have also allocated $1 billion for branch spending. It is still a challenge to achieve positive operating leverage for the full year.

The speaker discusses their company's expenses and how they are projected to be stable year-over-year. They also mention their commercial real estate reserves and how they see a difference in value based on location and market. They feel they have reserved correctly and are not too concerned about the impact on their business.

The speaker discusses the potential impact of rising interest rates on smaller banks and the commercial real estate market. They also mention their plans for capital build, including organic growth and potential buybacks. The speaker notes that there are still moving pieces and uncertainties, but they expect to reach a target capital ratio of 9-10% over the next year.

The speaker discusses the A3 number and its significance in building capital over time. They mention that the ultimate target for the A3 number is still being determined, but it will be higher than the current number. They also mention having capital flexibility and state that the ballpark estimate for the near term is around $100 million. The call is then concluded.

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