Release Date: October 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PNC Financial Services Group Inc (PNC, Financial) reported a strong third quarter with $1.5 billion in net income, translating to $3.49 diluted earnings per share.
- The company achieved positive operating leverage for the third consecutive quarter, positioning it for full-year positive operating leverage in 2024.
- Net interest income (NII) grew by 3%, with expectations of record NII in 2025.
- Fee income increased by 10%, driven by strong performance in capital markets and advisory fees.
- PNC Financial Services Group Inc (PNC) strengthened its capital levels, with a 9% increase in tangible book value per share and an estimated CET1 ratio of 10.3%.
Negative Points
- Loan utilization rates remain low, with commercial loans stable and consumer loans showing mixed results.
- The company expects additional charge-offs in the commercial real estate (CRE) office segment, although it believes it is adequately reserved.
- Fee income is expected to decline by 5% to 7% in the fourth quarter due to elevated third-quarter capital markets and mortgage servicing rights levels.
- Non-performing loans increased by 3% linked quarter, primarily driven by an increase in CRE office loans.
- The company faces challenges in achieving loan growth, with utilization rates below historical averages and uncertainty around economic factors such as elections and interest rates.
Q & A Highlights
Q: Can you clarify the impact of the swap rate changes on your financials and the outlook for 2025?
A: Robert Reilly, CFO, explained that the repricing of fixed-rate assets, including swaps, is occurring at higher rates. New swaps are at a higher rate than the old ones, and forward swaps executed in the spring have locked in rates for maturing assets in 2025. This contributes to the expectation of record net interest income (NII) in 2025.
Q: What are your thoughts on the current loan demand and what might drive borrowers to increase borrowing?
A: Robert Reilly, CFO, noted that while loan growth has been below expectations, they continue to add customers and loan commitments. The expectation is that commercial loan demand will return as inventory levels and business investments increase, potentially driven by rate cuts or improved economic confidence.
Q: How do you view the potential for deposit cost reductions following recent rate cuts?
A: Robert Reilly, CFO, stated that they are in a down beta cycle and expect to reduce rates paid on deposits, particularly in high-interest-bearing commercial deposits. The terminal beta is expected to be around 50%, with reductions continuing through the year.
Q: What is your outlook for net interest margin (NIM) and how does it relate to your financial strategy?
A: Robert Reilly, CFO, mentioned that while they don't manage specifically to NIM, it is increasing and could approach 3% over time. The focus remains on achieving record NII levels, which is not dependent on loan growth.
Q: How do you assess the health of your commercial customer base amid current economic conditions?
A: William Demchak, CEO, indicated that while there is margin pressure on corporates, the overall economy and their portfolio remain healthy. There is no indication of a significant increase in layoffs, and companies are managing well despite some industry-specific challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
