The operator welcomes participants to The PNC Financial Services Group's second quarter earnings conference call. The call will include a presentation and a question-and-answer session. The host, Bryan Gill, introduces the CEO, Bill Demchak, and the CFO, Rob Reilly. The presentation will contain forward-looking information and cautionary statements, and reconciliations of non-GAAP measures are available on the company's website. Bill Demchak highlights the strong second quarter results and mentions a gain on Visa shares, offset by other items. Rob Reilly will provide more details on the Visa gain and financial results. Net interest income has increased and is expected to continue growing towards a record high in 2025.

PNC continues to see strong business momentum and growth, particularly in new and expansion markets. They have seen accelerated growth in their branches and have added new corporate and commercial banking clients. In their retail business, they launched a new credit card and plan to launch more in the future. Expenses remain well controlled and they have increased their continuous improvement program target. The credit environment is playing out as expected and their capital levels remain strong. PNC has maintained their stress capital buffer and has the lowest start to trough capital depletion in their peer group. The board has approved an increase in their quarterly stock dividend. Overall, PNC delivered strong results in the second quarter and is well positioned for further growth and expansion.

The speaker, Bill, thanks the company's employees and introduces Rob to discuss the quarter's financial results. Rob reports stable loan and investment securities balances, a decrease in cash balances, and an increase in tangible book value. He also mentions the company's strong capital position and plans to return capital to shareholders, including a recent increase in the quarterly cash dividend.

The recent CCAR results show the strength of the balance sheet, with a stress capital buffer at the regulatory minimum. Average loan balances remained stable, with commercial loans and consumer loans showing slight declines. The yield on total loans increased, and the investment securities portfolio saw a $6 billion increase due to higher-yielding securities. The addition of forward starting swaps has locked in a portion of fixed rate asset repricing through 2025 at a higher level, and the duration of the portfolio is 2.2 years.

In the second quarter, we executed a securities repositioning that resulted in a $497 million loss but is expected to benefit net interest income by $80 million in 2024. We also expect continued reinvestment into higher-yielding assets, leading to further growth in tangible book value. Average deposits declined slightly, with non-interest bearing deposits stabilizing. Our rate paid on deposits is approaching its peak level and may increase slightly with elevated interest rates.

In the income statement, there were several significant items that had a minimal impact on earnings per share, resulting in a net EPS benefit of $0.09. These items include a gain of $754 million from participating in the Visa exchange program, a loss of $497 million from repositioning a portion of the securities portfolio, a negative $116 million Visa derivative fair value adjustment, and a $120 million contribution expense to the PNC Foundation. Overall, second quarter net income was $1.5 billion or $3.39 per share, with total revenue increasing by $266 million or 5%. Net interest income and margin also saw growth, while non-interest income increased by 12% and noninterest expense increased by 1%.

In the second quarter, the company saw positive operating leverage and a 5% increase in revenue, driven by higher non-interest income and net interest income. Non-interest expenses were well controlled, with a decline in personnel due to workforce reduction actions. The company remains focused on continuous improvement efforts.

PNC has set a goal of $450 million for their continuous improvement program, which funds their business and technology investments. Non-performing loans increased by 5% due to a secured loan in their asset-based lending business. Net loan charge-offs were $262 million, with $106 million related to their CRE office portfolio. The allowance for credit losses remains stable at 1.7% of total loans. The CRE office portfolio is expected to have additional charge-offs in the future, but PNC is adequately reserved for this. The exposure to this portfolio has decreased by 4%. Overall, PNC had a strong second quarter and is well positioned for the rest of the year.

The company expects continued economic growth in the second half of 2024 with a 2% increase in real GDP and a slight increase in unemployment. They predict the Fed will cut rates twice in 2024. In the third quarter, they expect stable average loans, a 1-2% increase in net interest income and fee income, and a 3-4% increase in non-interest expenses. They also expect net charge-offs to be between $250 million and $300 million. For the full year 2024, they expect average loans to be down slightly, but NII to be at the better end of previous expectations. Non-interest income is expected to increase by 3-5%, but slightly lower than previous guidance due to lower mortgage activity.

The company's total revenue is expected to decrease slightly, but their core non-interest expense is expected to decrease as well due to increased CIP targets. They also expect their effective tax rate to be lower. The company does not plan to continue their securities restructuring and does not anticipate needing to do so to meet their 2025 NII goal. As for deposit levels, the company does not have any plans to actively seek deposit growth, but may see some outflows due to tax-related factors.

The speaker is responding to a question about the bank's NII outlook. They mention that the expectation is for it to be stable to down, with some downward drift but not as much as in previous years. They also mention that the NII run rate for the back half of the year was guided lower, but this was due to muted loan growth assumptions. They emphasize that they do not control loan growth and have taken it out of their guidance, but their NII has improved due to positive deposit dynamics and a securities restructuring.

Erika Najarian asks about the stabilization of deposit rates on Slide 9 and how it has contributed to the upgrade of the core NII guide, even without restructuring.

The speaker answered a question about deposit rates and explained that they expect a slight increase in rates in the short-term, but not as significant as in previous quarters. They also discussed the impact of forward starters on the Nike Swoosh and how it provides more certainty rather than a change in magnitude.

The speaker discusses the expected fee components for the company, noting that there has been a slight decrease in expectations due to softness in the mortgage sector and reduced loan guidance. This may result in fewer loan syndication fees.

The speaker, Rob, discusses the correlation between loan growth and fees. He mentions that the company plans to introduce more credit card products in order to increase consumer lending. When asked about the potential for a 3% NIM margin next year, he explains that they do not provide NIM guidance but have operated at that level in a normal environment.

In the paragraph, the speaker discusses their expectations for the future, including the possibility of going up in 2025 and the stability of their credit quality. They also mention that their reserves are stable and they are indifferent to the potential effects of rate cuts on their net interest margin and yield curve.

The speaker discusses the impact of the steepness of the curve on the pricing of maturing fixed rate assets and how it is a variable for everyone. They mention locking in some of it and feeling confident about their positioning. They then address the rising NPLs and stable reserve rate, stating that it is expected and the credit quality of corporate America may be impacted by rising rates.

In this paragraph, the speakers discuss the potential impact of real-time payments and the FedNow Instant Payment Services on PNC. They mention that PNC's reserves are adequate and that the increase in non-CRE NPLs in commercial is due to one large credit that is fully secured. They also mention that FedNow does not have much of an impact on PNC as it is not a network and does not add or subtract from existing opportunities for real-time payments. The speakers do not see it as a threat to PNC in the long term.

The operator introduces the next question from Ken Usdin of Jefferies. Ken asks about the carry forward of fixed assets through 2026 and the expected increase in expenses in the second half of the year. Robert Reilly responds that they will not provide guidance for 2026, but the dynamic will continue to increase. He also explains that expenses will be higher in the third quarter due to investments in technology and an additional day.

The speaker discusses the reasons for negative operating leverage in the current year, including a decrease in loan growth and expenses not falling uniformly. They also mention the positive impact of a continued improvement program, securities repositioning, and fixed asset repricing on net interest income. However, the speaker acknowledges that loan growth is a key factor in achieving positive operating leverage in the second half of the year. The speaker also mentions the optimism of other capital market players and the slight underperformance in loan growth compared to H8 data.

The speaker is explaining that their company is not seeing the loan growth they expected, but they are still performing well and winning clients. They have decided to remove guidance on loan growth because it has not been realized yet. The speaker mentions that they have expanded to new markets and have been successful in acquiring new clients. The exact numbers on loan growth are not provided, but the speaker says they will produce those metrics in the future.

The speaker discusses the low loan growth and inventory levels, and how they are not in control of it. They mention that CEO confidence is up, but they are not seeing it translate into loan growth. They also mention that they could give a more optimistic forecast, but they do not see any evidence to support it. The speaker suggests that the cost of holding inventory may be a factor in the low loan growth.

The speaker discusses the uncertainty surrounding regulatory changes and how it may affect investments. They also mention a new credit card product and their desire to improve their offerings and technology in that area. They clarify that they will not be acquiring portfolios and their goal is to increase their market share in the credit card industry.

Gerard Cassidy asks PNC CEO William Demchak and CFO Robert Reilly about their insights into the commercial real estate business through their subsidiary Midland. He wants to know if there has been an increase in special servicing, which can indicate the direction of the market. Reilly mentions that their special servicing balance actually decreased in the quarter, but they expect it to go up in the future. Demchak mentions that they have made forecasts on maturity bubbles and property types.

The executives of a company are discussing the growth of their balance and how it is not growing as quickly as they had anticipated due to loans being cured and sold off quickly. They also mention that their commercial real estate portfolio primarily consists of multi-tenant office properties and that they have thoroughly analyzed each asset in the portfolio. They also mention that they use conservative assumptions when conducting their own appraisals.

The speaker discusses their evaluation process for properties, including factors such as vacancy rates, interest rates, and rehab costs. They also mention that their approach is not affected by geographical location, as success can be found in any city if the property is in the right location. The speaker concludes by thanking the participants and offering to answer any follow-up questions.

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