Q4 2024 The PNC Financial Services Group Inc Earnings Call
Operator: Greetings and welcome to the PNC Financial Services Group fourth quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.
Greetings and welcome to the PNC Financial Services Group fourth quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: The question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Operator: If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to introduce Brian Gill Executive Vice President and director of Investor Relations. Thank you you may begin.
Bryan Gill: It is now my pleasure to introduce Bryan Gill, Executive Vice President and Director of Investor Relations. Thank you. You may begin.
Bryan Gill: Well, good morning, and welcome to today's conference call for the PNC Financial Services Group. I am Bryan Gill, the Director of Investor Relations for PNC, and participating on this call are PNC's Chairman and CEO, Bill Demchak, and Rob Reilly, Executive Vice President and CFO. Today's presentation contains forward-looking information.
Operator: Hello, Good morning, and welcome to today's conference call for the PNC Financial Services Group I Am Bryan Gill, the director of Investor Relations for P&C and participating on this call are Pnc's, chairman and CEO Bill them check and Rob Reilly Executive Vice President and CFO. Today's presentation contains forward looking information.
Bryan Gill: Cautionary statements about this information, as well as reconciliations of non-GAAP measures, are included in today's earnings release materials, as well as our SEC filings and other investor materials. These are all available on our corporate website, pnc.com, under Investor Relations.
Operator: In your statements about this information as well as reconciliations of non-GAAP measures are included in today's earnings release materials as well as our SEC filings and other investor materials. These are all available on our corporate website PNC com under Investor Relations. These statements speak only as of January 16, 2025, and PNC undertakes no obligation to up.
Bryan Gill: These statements speak only as of January 16, 2025, and PNC undertakes no obligation to update them.
William Demchak: Now I'd like to turn the call over to Bill. Thank you, Bryan, and good morning, everyone. As you've seen, we had a solid fourth quarter and a very strong year. For the full year of 2024, we earned $6 billion, or $13.74 per share. We executed well against our priorities and continued to gain momentum across our franchise. While loan demand remained soft throughout the year, our net interest income benefited meaningfully from fixed asset repricing, and we expect to see further tailwinds from repricing over the next couple of years. We grew fee income by 6%, and we achieved record revenue.
Bill Demchak: Now I'd like to turn the call over to Bill.
Bill Demchak: Thank you, Brian and good morning, everyone as you've seen we had a solid fourth quarter and a very strong year.
Bill Demchak: For the full year 'twenty 'twenty four we earned $6 billion or $13 74 per share, we executed well against our priorities and continue to gain momentum across our franchise.
Bill Demchak: While loan demand remained soft throughout the year, our net interest income benefited meaningfully from fixed asset repricing and we expect to see further tailwind from repricing over the next couple of years. We grew fee income by 6%. We achieved record revenue at the same time, we maintained our expense discipline and allowing us to deliver positive operating leverage.
William Demchak: At the same time, we maintained our expense discipline, allowing us to deliver positive operating leverage, which is an aside, and you will recall that looked pretty much out of reach at the start of 2024. Finally, we grew capital and increased our tangible book value per share by 12% compared to last year, while returning $3 billion of capital to shareholders through dividends and share buybacks.
Bill Demchak: <unk>, which is an aside and you will recall that look pretty much out of reach at the start of 2024.
Speaker Change: Finally, we grew capital and increased our tangible book value per share by 12% compared to last year, while returning $3 billion of capital to shareholders through dividends and share buybacks and Rob is going to walk through the financial results in more detail, but I wanted to take just a moment to reflect on the strength of pnc's positioning as we head into 2025.
William Demchak: Now Rob's going to walk through the financial results in more detail, but I wanted to take just a moment to reflect on the strength of PNC's positioning as we head into 2025. Our businesses are performing exceptionally well, and we continue to see positive momentum, particularly in our expansion markets. CNIB had record revenue and non-interest income in 2024 as new client growth continued at an accelerated rate. Our sales in our expansion markets grew 26% with over 60% of those sales being non-credit. In retail banking, consumer DDA growth in 2024 was the highest it's been in eight years, and we produced record brokerage revenue at PNC Investments, and the Asset Management Group delivered its strongest level of positive net flows in years.
Speaker Change: Our businesses are performing exceptionally well and we continue to see positive momentum, particularly in our expansion markets C&I be had record revenue and noninterest income in 'twenty 'twenty four is new client growth continued at an accelerated rate our sales in our expansion markets grew 26% with over 60% of those sales.
Speaker Change: As being non credit.
Speaker Change: In retail banking consumer DDA growth in 'twenty 'twenty four was the highest it's been in eight years and we produced record brokerage revenue at PNC investments and the asset management group delivered its strongest level of positive net flows and years.
William Demchak: Going forward, we're investing in new products and an expanded footprint to further accelerate our momentum. We will soon be rolling out our new online banking platform. We are doubling our new branch builds to gain scale on some of the fastest growing regions in the country, and on the corporate side, we recently announced our entry into the Salt Lake City market. As Rob will highlight, our forward guidance solidly points to record NII in 2025, as well as strong fee income growth across our franchise. This, combined with our ongoing expense discipline, positions us to deliver meaningful positive operating leverage this year.
Speaker Change: Going forward, we're investing in new products and an expanded footprint to further accelerate our momentum.
Speaker Change: We'll soon be rolling out our new online banking platform, we are doubling our new branch builds to gain scale on some of the fastest growing regions in the country and on the corporate side, We recently announced our entry into the Salt Lake City market is.
Speaker Change: As Rob will highlight our forward guidance solidly points to record NII in 2025, as well as strong fee income growth across our franchise. This combined with our ongoing expense discipline positions us to deliver meaningful positive operating leverage this year.
William Demchak: Well, there are a lot of uncertainties regarding the outlook for the economy, interest rates, the regulatory environment, we believe that PNC's balance sheet is well positioned, we are adequately reserved for our credit risk, and our strong capital levels provide substantial flexibility as we enter 2025.
Speaker Change: Well there are a lot of uncertainties regarding the outlook for the economy interest rates the regulatory environment.
We believe that Pnc's balance sheet is well positioned we are adequately reserved for our credit risk and our strong capital levels provides substantial flexibility as we enter 2025.
William Demchak: Before wrapping up, I'd like to spend just a moment to express our sympathies to those who have been impacted by the wildfires. PNC is, of course, committed to supporting our customers, our communities, and importantly, the more than 200 employees we have in the affected areas. I also want to thank our employees for everything they do for our company and our customers. We accomplished a significant amount in 2024, and we're entering 2025 with a lot of momentum. I've never been more excited about the opportunities in front of us to continue to grow our franchise and to deliver for our stakeholders.
Speaker Change: Before wrapping up I'd.
Speaker Change: To spend just a moment to express our sympathies to those who have been impacted by the wildfires on PNC is of course committed to supporting our customers our communities and importantly, the more than 200 employees, we have in the affected areas.
Speaker Change: I also want to thank our employees for everything they do for our company and our customers.
We accomplished a significant amount in 'twenty 'twenty four and we're entering 2025 with a lot of momentum I've never been more excited about the opportunities in front of us to continue to grow our franchise and to deliver for our stakeholders and with that I'll turn it over to Rob to take you through the numbers, Rob Thanks, Bill and good morning, everyone. Our balance sheet is on slide four.
Robert Reilly: And with that, I'll turn it over to Rob to take you through the numbers.
Robert Reilly: Rob?
Robert Reilly: Thanks, Bill, and good morning, everyone. Our balance sheet is on slide four and is presented on an average basis. For the length quarter, loans of $319 billion were stable, investment securities increased by $2 billion, and our cash balance is at the Federal Reserve for $38 billion, a decrease of $7 billion, or 16%. Deposit balances grew $3 billion, an average $425 billion. FARD funds decreased $9 billion, or 12%, primarily due to the maturity of FHLB advances. At quarter end, AOCI was negative $6.6 billion compared to negative $5.1 billion as of September 30th, reflecting the impact of higher rates.
Rob Reilly: As presented on an average basis.
Rob Reilly: For the linked quarter loans at $319 billion were stable investment securities increased by $2 billion and our cash balances at the federal reserve for $38 billion, a decrease of $7 million or 16%.
Rob Reilly: Deposit balances grew to $3 billion and averaged $425 billion borrowed funds decreased $9 billion or 12% Pri.
Rob Reilly: Primarily due to the maturity of F. H L D advances.
Rob Reilly: At quarter end, Aoc I was negative $6.6 billion compared to negative $5 $1 billion as of September 30th, reflecting the impact of higher rates.
Robert Reilly: Our tangible book value was $95.33 per common share, which was a slight decline linked quarter due to the decrease in AOCI, but a 12% increase compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 10.5% as of December 31st, and we estimate our revised standardized ratio, which includes AOCI, to be 9.2% at quarter end. We continue to be well-positioned with capital flexibility.
Our tangible book value was $95.33 per common share, which was a slight decline linked quarter due to the decrease in a OCI, but a 12% increase compared to the same period a year ago, we remain well capitalized with an estimated CET one ratio of 10.5% as of December 31, and we estimate our.
Rob Reilly: <unk> standardized ratio, which includes a OCI to be 9.2% at quarter end.
Rob Reilly: We continue to be well positioned with capital flexibility, we returned approximately $900 million of capital to shareholders during the quarter through both common dividends and share repurchases.
Robert Reilly: We returned approximately $900 million of capital to shareholders during the quarter through both common dividends and share repurchases.
Robert Reilly: Slide five shows our loans in more detail. Average loan balances of $319 billion were stable compared to the third quarter. And the yield on total loans decreased 26 basis points to 5.87% in the fourth quarter, primarily driven by lower short-term rates. Consumer loans averaged $100 billion and were essentially flat-linked quarter as growth in auto was offset by a decline in residential real estate. Commercial loans of $219 billion were stable as growth in CNIB and leasing balances was offset by a $1 billion decline in commercial real estate loans. On a period-end basis, commercial loans declined roughly $5 billion, reflecting both lower CRE balances and utilization rates.
Rob Reilly: Slide five shows our loans in more detail average loan balances of $319 billion were stable compared to the third quarter.
Rob Reilly: And the yield on total loans decreased 26 basis points to 5.87% in the fourth quarter, primarily driven by lower short term rates.
Rob Reilly: Consumer loans averaged $100 billion and were essentially flat linked quarter as growth in auto was offset by a decline in residential real estate.
Rob Reilly: Commercial loans of $219 billion were stable as growth in C&I and leasing balances was offset by a $1 billion decline in commercial real estate loans.
Rob Reilly: On a period end basis commercial loans declined roughly $5 billion, reflecting both lower CRE balances and utilization rates.
Robert Reilly: Slide 6 details our investment security and SWOT portfolios. Overall, we continue to be relatively neutral to changes in interest rates in 2025, and we continue to manage our fixed and floating rate assets to reduce interest rate sensitivity in future years. Average investment securities of $144 billion increased $2 billion as purchases more than offset runoff and maturity. During the quarter, we continue to add floating rate securities, and our total portfolio is now 20% floating, compared to 6% a year ago. The majority of our floating rate securities are designated as available for sale, and as a result, comprise approximately 40% of our AFS portfolio.
Rob Reilly: Slide six details our investment security and swap portfolios.
Rob Reilly: Overall, we continue to be relatively neutral to changes in interest rates in 2025, and we continue to manage our fixed and floating rate assets to reduce interest rate sensitivity in future years.
Rob Reilly: Average investment securities of $144 billion increased $2 billion as purchases more than offset run off in maturities.
Rob Reilly: During the quarter, we continued to add floating rate securities in our total portfolio is now 20% floating compared to 6% a year ago.
Rob Reilly: The majority of our floating rate securities are designated as available for sale and as a result comprised approximately 40% of our SaaS portfolio.
Robert Reilly: Also, floating rate securities are a higher-yielding alternative to excess cash at the Federal Reserve. The yield on our securities portfolio increased 9 basis points to 3.17%, driven by higher rates on new purchases and the runoff of lower yielding securities. And as of December 31st, the duration of our securities portfolio was approximately 3.4 years. Our received fixed rate swaps pointed to the commercial loan book totaled $50 billion on December 31st, comprised of $37 billion of active swaps and $13 billion of forward starting swaps. The weighted average received rate on the active swaps increased 14 basis points linked quarter to 3.22%.
Rob Reilly: Also floating rate securities are a higher yielding alternative to excess cash at the federal reserve.
The yield on our securities portfolio increased nine basis points to 3.17% driven by higher rates on new purchases and the run off of lower yielding securities.
Rob Reilly: And as of December 31st the duration of our securities portfolio was approximately 3.4 years.
Rob Reilly: Our receive fixed rate swaps pointing to the commercial loan book totaled $50 billion on December 31st comprised of $37 billion of active swaps and $13 billion of forward starting swaps. The weighted average received rate on the active swaps increased 14 basis points linked quarter to 3.22%.
Robert Reilly: Looking forward, we expect considerable runoff in our short-term duration securities and SWOT portfolio. which will allow us to continue to reinvest into higher yielding assets. Accordingly, AOCI will accrete back with maturity, resulting in continued growth to tangible book value.
Rob Reilly: Looking forward, we expect considerable runoff in our short term duration securities and swap portfolios, which will allow us to continue to reinvest into higher yielding assets.
Rob Reilly: Accordingly, a OCI will accrete back with maturity, resulting in continued growth to tangible book value.
Robert Reilly: A full update on the expected maturities and AOCI burndown is provided in the appendix.
Rob Reilly: A full update on the expected maturities and Aoc I burned down as provided in the appendix.
Robert Reilly: Slide seven covers our deposit balances in more detail. Average deposits increased $3 billion, or 1%, reflecting continued growth in interest-bearing commercial balances, partially offset by lower consumer brokered CD balance. Regarding MIX, non-interest bearing deposits were stable at $96 billion and remained at 23% of total average deposits. Our rate paid on interest bearing deposits declined 29 basis points during the fourth quarter to 2.43%, reflecting pricing actions commensurate with the Fed rate cut. Our cumulative deposit beta through December was 47%, and going forward, we expect our beta to be in the high 40% range during the anticipated rate cutting cycle.
Rob Reilly: Slide seven covers our deposit balances in more detail average deposits increased $3 billion or 1%, reflecting continued growth in interest bearing commercial balances, partially offset by lower consumer brokered CD balances.
Rob Reilly: Regarding mix noninterest bearing deposits were stable at $96 billion and remained at 23% of total average deposits.
Rob Reilly: Our rate paid on interest bearing deposits declined 29 basis points during the fourth quarter to 2.43%.
Rob Reilly: Reflecting pricing actions commensurate with the fed rate cuts.
Rob Reilly: Our cumulative deposit beta through December was 47% and going forward, we expect our beta to be in the high 40% range during the anticipated rate cutting cycle.
Robert Reilly: Turning to slide 8, we highlight our income statement trends and a few notable items this quarter. Fourth quarter net income was $1.6 billion or $3.77 per share. Comparing the 4th quarter to the 3rd quarter, total revenue of $5.6 billion increased to $135 million, or 2%. Net interest income grew by $113 million, or 3%. and our net interest margin was 2.75%, an increase of 11 basis points. Non-interest income of $2 billion increased 1%. Non-interest expense of $3.5 billion increased to $179 million, or 5%. The increase included non-core items netting to $79 million pre-tax, or $62 million after-tax, which I'll provide more detail on in a few moments.
Rob Reilly: Turning to slide eight we highlight our income statement trends and a few notable items this quarter.
Rob Reilly: Fourth quarter net income was $1.6 billion or $3 77 per share.
Rob Reilly: Comparing the fourth quarter to the third quarter total revenue of $5.6 billion increased to $135 million or 2% net interest income grew by $113 million or 3%.
And our net interest margin was 2.75% an increase of 11 basis points.
Rob Reilly: Noninterest income of $2 billion increased 1%.
Rob Reilly: Noninterest expense of $3 $5 billion increased $179 million or 5%. The increase included noncore items, netting to $79 million pretax were $62 million after tax, which I'll provide more detail on in a few moments.
Robert Reilly: Provision was $156 million, reflecting improved macroeconomic factors and portfolio activity. And our effective tax rate was 14.6%, which included $60 million of income tax benefits related to the resolution of certain tax matters.
Rob Reilly: Provision was $156 million, reflecting improved macroeconomic factors and portfolio activity and.
Rob Reilly: And our effective tax rate was 14.6%, which included $60 million of income tax benefits related to the resolution of certain tax matters.
Robert Reilly: Turning to slide nine, we highlight our revenue trends. On a full year basis, we generated record revenue of $21.6 billion, as lower net interest income was more than offset by 6% growth in non-interest income. Looking at the linked quarter comparison, revenue increased $135 million, driven by higher net interest income. Net interest income of $3.5 billion increased $113 million, or 3%, driven by lower funding costs and the continued benefit of fixed-rate asset repricing. Fee income was $1.9 billion and decreased $84 million or 4% linked quarters. Looking at the detail, asset management and brokerage income declined $9 million, or 2%, reflecting lower annuity sales, partially offset by the benefit of higher average equity market.
Rob Reilly: Turning to slide nine we highlight our revenue trends on a full year basis, we generated record revenue of $21 $6 billion as lower net interest income was more than offset by 6% growth in noninterest income.
Rob Reilly: Looking at the linked quarter comparison revenue increased $135 million driven by higher net interest income.
Rob Reilly: Net interest income of $3 $5 billion increased $113 million or 3% driven by lower funding costs and the continued benefit of fixed rate asset repricing.
Rob Reilly: Fee income was $1.9 billion and decreased $84 million or 4% linked quarter looks.
Rob Reilly: Looking at the detail.
Rob Reilly: Asset management, and brokerage income declined $9 million or 2%, reflecting lower annuity sales, partially offset by the benefit of higher average equity markets.
Robert Reilly: Capital Markets and Advisory Fees decreased $23 million, or 6%, reflecting elevated third-quarter activity. Card and cash management fees were stable as higher treasury management revenue was offset by credit card origination incentives. Lending and deposit services revenue grew $10 million or 3% due to increased customer activity. Mortgage revenue declined $59 million linked quarter, primarily due to elevated RMSR hedge gains in the third quarter. and our other non-interest income increased $106 million reflecting a less negative impact from visa derivative activity.
Rob Reilly: Capital markets, and advisory fees decreased $23 million or 6%, reflecting elevated third quarter activity.
Rob Reilly: Card and cash management fees were stable as higher Treasury management revenue was offset by credit card origination incentives.
Rob Reilly: Lending and deposit services revenue grew $10 million or 3% due to increased customer activity.
Rob Reilly: Mortgage revenue declined $59 million linked quarter, primarily due to elevated our MSR hedge gains in the third quarter.
Rob Reilly: And our other noninterest income increased $106 million, reflecting a less negative impact from visa derivative activity.
Rob Reilly: Yeah.
Robert Reilly: Turning to slide 10, full year non interest expense decreased by $488 million or 3%. Core non interest expense was down $152 million or 1% compared to 2023. As a result, we generated positive operating leverage on a reported basis, as well as adjusted for non-core expenses. Fourth quarter non-interest expense of $3.5 billion increased to $179 million or 5%. As I mentioned, the quarter included $79 million of non-core expenses, which reflected $97 million of asset impairments, partially offset by an $18 million reduction to the FDIC Special Assessment. The asset impairments included a number of items and were primarily related to various technology investments.
Rob Reilly: Turning to slide 10, full year noninterest expense decreased by $488 million or 3% core noninterest expense was down $152 million or 1% compared to 2023.
Rob Reilly: As a result, we generated positive operating leverage on a reported basis as well as adjusted for noncore expenses.
Rob Reilly: Fourth quarter noninterest expense of $3 $5 billion increased $179 million or 5%.
Rob Reilly: As I mentioned the quarter included $79 million of noncore expenses, which reflected $97 million of asset impairments, partially offset by an 18 million dollar reduction to the FDIC special assessment.
Rob Reilly: The asset impairments included a number of items and were primarily related to various technology investments.
Robert Reilly: Core non-interest expense increased $100 million or 3% linked quarter, largely due to seasonality and higher marketing spend. As you know, we had a 2024 goal of $450 million in cost savings through our continuous improvement program, which we exceeded. Looking forward to 2025, our annual CIP target is $350 million. And this program will continue to fund a significant portion of our ongoing business and technology investment.
Rob Reilly: Core noninterest expense increased $100 million or 3% linked quarter, largely due to seasonality and higher marketing spend.
Rob Reilly: As you know we had a 'twenty 'twenty four goal of $450 million in cost savings through our continuous improvement program, which we exceeded.
Rob Reilly: Looking forward to 2020 five our annual CIP target is $350 million and this program will continue to fund a significant portion of our ongoing business and technology investments.
Robert Reilly: Our credit metrics are presented on slide 11. Non-performing loans decreased $252 million, or 10% linked quarter, driven by lower CNI and CRE NPL. Total delinquencies of $1.4 billion were up $107 million or 8% compared with September 30th. The increase was primarily driven by commercial loan delinquencies, the majority of which have already been or are in the process of being resolved. Net loan charge-offs were $250 million, the $36 million linked quarter decrease was driven by lower office CRE charge-offs and higher commercial recovery. and our annualized net charge-offs to average loans ratio was 31 basis. Our allowance for credit losses totaled $5.2 billion, or 1.64% of total loans on December 31st, down one basis point from September 30th.
Our credit metrics are presented on slide 11, nonperforming loans decreased $252 million or 10% linked quarter, driven by lower C&I and CRE npls.
Rob Reilly: Total delinquencies of $1.4 billion were up $107 million or 8% compared with September 30th the.
The increase was primarily driven by commercial loan delinquencies the majority of which have already been or are in the process of being resolved.
Rob Reilly: Net loan charge offs for $250 million, the $36 million linked quarter decrease was driven by lower office CRE charge offs and higher commercial recoveries.
Rob Reilly: And our annualized net charge offs to average loans ratio was 31 basis points.
Our allowance for credit losses totaled $5 $2 billion or 1.64% of total loans on December 31st down.
Rob Reilly: Down one basis point from September 30th.
Robert Reilly: Slide 12 provides more detail on our CRE office portfolio. Our office CRE balance has declined 7% or approximately $500 million a linked quarter as we continue to manage our exposure down. Criticized loans and non-performing balance has also declined as paydowns and charge-offs outpace new inflows during the quarter. Net loan charge-offs within the CRE office portfolio were $62 million, down from $95 million in the third quarter. Despite this decline, we continue to see stress in the office portfolio given the challenges inherent in this book and the lack of demand for office property. As a result, we expect additional charge-offs, the size of which will vary quarter-to-quarter, given the nature of the loans.
Rob Reilly: Slide 12 provides more detail on our CRE office portfolio.
Rob Reilly: Our office CRE balances declined 7% or approximately $500 million linked quarter as we continue to manage our exposure down criticized loans and nonperforming balances also declined as paydowns and charge offs outpaced new inflows during the quarter.
Rob Reilly: Net loan charge offs within the CRE office portfolio were $62 million down from $95 million in the third quarter.
Rob Reilly: Despite this decline we continue to see stress in the office portfolio given the challenges inherent in this book and a lack of demand for office properties. As a result, we expect additional charge offs the size of which will vary quarter to quarter given the nature of the loans our reserves on the office portfolio increased to 13% as of December 31st up from 11.
Robert Reilly: Our reserves on the office portfolio increased to 13% as of December 31st, up from 11% the prior quarter. The increases in reserves reflect the continued valuation adjustments across the portfolio. Accordingly, we believe we are adequately reserved.
Rob Reilly: 1% the prior quarter.
Rob Reilly: The increases in reserves reflects a continued valuation adjustments across the portfolio.
Rob Reilly: Accordingly, we believe we are adequately reserved.
Robert Reilly: In summary, PNC reported a solid fourth quarter, which contributed to an overall successful 2024 and were well positioned for 2025. Regarding our view of the overall economy, we're expecting continued economic growth over the course of 2025, resulting in approximately 2% real GDP growth and unemployment to remain slightly above 4% through year end. We expect the Fed to cut rates two times in 2025 with a 25 basis point decrease in March and another in June.
Rob Reilly: In summary, PNC reported a solid fourth quarter, which contributed to an overall successful 'twenty 'twenty four and we're well positioned for 2025.
Rob Reilly: Regarding our view of the overall economy, we're expecting continued economic growth over the course of 'twenty 25, resulting in approximately 2% real GDP growth and unemployment to remain slightly above 4% through year end.
Rob Reilly: We expect the fed to cut rates two times in 2025 with a 25 basis point decrease in March and another in June.
Robert Reilly: Looking ahead, our outlook for full year 2025 compared to 2024 results is as follows. In regard to loan growth, while a lot of indications point to accelerated growth, we've not built that into our guidance. As a result, our guidance reflects spot loan growth of 2-3%, which equates to stable average full-year loans. We expect total revenue to be up approximately 6%. Inside of that, our expectation is for net interest income to be up 6-7%, and non-interest income to be up approximately 5%. Non-interest expense to be up approximately 1%. and we expect our effective tax rate to be approximately 19%.
Rob Reilly: Looking ahead, our outlook for full year 2025, compared to 2024 results is as follows.
Rob Reilly: In regard to loan growth, while a lot of indications point to accelerated growth, we've not built that into our guidance as a result, our guidance reflects spot loan growth of 2% to 3%, which equates to stable average full year loans. We expect total revenue to be up approximately 6% inside of that our expectation is for net interest income.
Rob Reilly: <unk> to be up 6% to 7% and noninterest income to be up approximately 5%.
Rob Reilly: Noninterest expense to be up approximately 1%.
Rob Reilly: And we expect our effective tax rate to be approximately 19%.
Robert Reilly: Based on this guidance, we expect we will generate substantial positive operating leverage in 2025.
Rob Reilly: Based on this guidance, we expect we will generate substantial positive operating leverage in 2025.
Robert Reilly: Our outlook for the first quarter of 2025 compared to the fourth quarter of 2024 is as follows. We expect average loans to be down approximately 1%. Net interest income to be down 2-3%, which includes the impact of two fewer days in the quarter. See and come to be stable. Other non-interest income to be in the range of $150 to $200 million excluding visa activity. Taking the component pieces of revenue together, we expect total revenue to be down 1-2%. We expect total non-interest expense to be down 2-3%. and we expect first quarter net charge-offs to be approximately $300 million.
Rob Reilly: Our outlook for the first quarter of 2025 compared to the fourth quarter of 'twenty 'twenty. Four is as follows we expect average loans to be down approximately 1% net.
Rob Reilly: Net interest income to be down 2% to 3%, which includes the impact of two fewer days in the quarter.
Rob Reilly: Fee income to be stable.
Rob Reilly: Other noninterest income to be in the range of $150 million to $200 million, excluding visa activity.
Rob Reilly: Taking the component pieces of revenue together, we expect total revenue to be down 1% to 2%.
Rob Reilly: We expect total noninterest expense to be down 2% to 3% and.
Rob Reilly: And we expect first quarter net charge offs to be approximately $300 million.
William Demchak: And with that, Bill and I are ready to take your questions.
Speaker Change: And with that Bill and I are ready to take your questions.
Operator: Thank you.
Speaker Change: Thank you we will now be conducting a question and answer session.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star to remove yourself. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: To ask a question. Please press star one on your telephone keypad a.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two to remove yourself from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Operator: One moment, please, while we poll for your questions.
Speaker Change: Please while we poll for your questions.
John Mcdonald: Our first questions come from the line of John McDonald with Truist Securities. Please proceed with your question. Hi, good morning.
John Mcdonald: Our first questions come from the line of John Mcdonald with true with Securities. Please proceed with your questions.
Speaker Change: Hi, Good morning, I wanted to start off with.
Robert Reilly: I wanted to start off with a take on industry deposit growth and trends in 2025. What are you guys seeing for the industry this year? And then maybe some comments on PNC's ability to gain some share in retail deposits, particularly as you start densifying some of the expansion markets?
Speaker Change: Take an industry deposit growth and trends in 25, what are you guys seeing for the industry. This year and then maybe some comments on P&C is ability to gain some share in retail deposits, particularly as you start densify some of the expansion markets.
Robert Reilly: Hey, John, good morning. It's, it's Rob. Yeah, so on deposits, in terms of our outlook for 2025, we do see growing deposits, you know, slightly one to 2% over the course of the year. We do expect some seasonality, though, on commercial deposits, where they'll go down a little bit in the first quarter and then grow from there. As far as our organic efforts in the expansion markets, things are going really well, and things continue along those lines. I'm sorry, Bill, the DDA growth that Bill talked about at the beginning, you know, bodes well for it.
Rob Reilly: Hey, John Good morning, it's that it's Rob.
Rob Reilly: Yeah. So on deposits in terms of our outlook for a 25, we do see a growing deposits.
Rob Reilly: Slightly 1% to 2% over the course of the year.
Rob Reilly: We do expect some seasonality, though on commercial deposits, where those are down a little bit in the first quarter and then grow from there.
Rob Reilly: As far as our organic efforts and the expansion markets things are going really well.
Rob Reilly: And.
Rob Reilly: If things continue along those lines.
Rob Reilly: Sorry, Bill day at the DDA growth that Bill talked about at the beginning you know.
Rob Reilly: Bodes well for us.
John Mcdonald: Okay, thanks, Rob.
Rob Reilly: Okay. Thanks, Rob and then in terms of the NII guidance, maybe just some thoughts on the cadence and the drivers obviously down in the first quarter and then how do the drivers of line two.
Robert Reilly: And then in terms of the NII guidance, maybe just some thoughts on the cadence and the drivers, obviously down in the first quarter, and then how do the drivers align to pick up sequentially and kind of get you that 6-7 for the year? Yeah, so a couple of things on that. And I'll just repeat what I said in the opening comments. Our guide for the full year and for the first quarter is very conservative in terms of loan growth. Average loans for the full year are stable, spot up 2 to 3 percent. So, you know, we want to emphasize that in terms of how we calculate our full year NII and for the first quarter.
Rob Reilly: Pick up sequentially and kind of get to that 67 for the year.
Rob Reilly: Yeah. So a couple of things on that then did I'll just repeat what I said in the opening comments our guide for.
Rob Reilly: For the full year and for the first quarter is very conservative in terms of loan growth average loans for the full year stable spot up 2% to 3%.
Rob Reilly: So yeah, we want to emphasize that in terms of how we calculate our full year NII and for the first quarter our inside.
Robert Reilly: Inside of that, obviously, it's a continuation of the fixed rate asset repricing that we've talked about a lot and the continued dynamics around the floating rates and the deposit. In the first quarter, we do call for NII to be down 2-3%. 75% of that decline is fewer days. And then the balance is just some lower seasonal commercial deposits that I talked about, both interest-bearing and non-interest-bearing, which is typical. And then again, I emphasize no loan growth in our first quarter NII guidance. And does the fixed asset reprice kind of pick up as you go through the year?
Rob Reilly: Inside of that obviously, it's a continuation of the fixed rate asset repricing that we've talked about a lot.
Rob Reilly: And the continued dynamics around the floating rates the deposits back.
Rob Reilly: In the first quarter.
Rob Reilly: We do call for NII to be down 2% to 3%.
75% of that decline is fewer days.
Rob Reilly: And then the balance is just some lower seasonal commercial deposits that I talked about those interest bearing and noninterest bearing which is typical.
Rob Reilly: And again I emphasize no no loan growth in our first quarter NII guidance.
Rob Reilly: Okay and does the fixed asset repricing kind of pick up as you go through the year or is there any kind of waiting to that throughout the year.
Robert Reilly: Is there any kind of weighting to that throughout the year? Oh, it's pretty balanced. You know, it continues on the on the path that we're on. So, you know, it'll continue through 25 and beyond for that.
Rob Reilly: Well, it's pretty balanced.
Rob Reilly: It continues on the path that we're on so you know it'll continue through 'twenty, five and beyond that for that matter.
Rob Reilly: Okay. Thank you.
Rob Reilly: Sure.
Scott Siefers: Thank you. Our next questions come from the line of Scott Siefers with Piper Sandler. Please proceed with your question. Thank you. Morning, guys. Thanks for taking the question. Let's see, Rob, so you've emphasized a couple times not a lot of loan growth baked into the guide, which I appreciate.
Speaker Change: Thank you. Our next question comes from the line of Scott <unk> with Piper Sandler. Please proceed with your questions.
Speaker Change: Thank you good morning, guys. Thanks for taking the question.
Speaker Change: Let's see.
Speaker Change: A couple of times not a lot of loan growth baked into the guide, which I. Appreciate it just curious now that the dust has kind of settled on the election you know.
Robert Reilly: Just curious, now that the dust has kind of settled on the election, you know, maybe just updated thoughts on, you know, how you might see demand developing. You know, it's pretty clear that's not going to be a requisite to hit your numbers, but, you know, just what are your clients thinking, saying, could we evolve something into the second half of the year? How are you thinking about kind of the major touch points you'll be looking for?
Speaker Change: Maybe just updated thoughts on.
Speaker Change: How you might see demand developing it's pretty clear that's not going to be requisite to hit your numbers, but you know.
Speaker Change: Just what are your clients thinking, saying could we evolve something into the second half of the year. How are you thinking about kind of the major touch points, you'll be looking for.
Speaker Change: Uh huh.
Robert Reilly: You know, we've got this question for four quarters. A lot of indications that would suggest that utilization ought to increase. And I ought to say, you know, we're growing clients and we're growing DHE. We're just, you know, as utilization decreases, it's causing balances to fall.
Speaker Change: We've gotten this question for four quarters.
Speaker Change: Uh huh.
Speaker Change: A lot of indications that would suggest that utilization auto increase that I ought to say, we're growing clients and we're growing D. E. G. We're just.
Speaker Change: Utilization decreases, it's causing balances to fall.
Robert Reilly: Um You know, under the presumption that the new administration acts pretty clearly as it relates to what they're going to do with tariffs and other things, kind of right out of the gate so people know where they stand, presumably, you'll start seeing investment and utilization But we've just, you know, as we've said before, we've kind of gotten tired of trying to, you know, pick that, pick that point in time, you know, where things go up and just be conservative. Gotcha. Perfect. All right. Thanks, Bill.
Speaker Change:
Speaker Change: You know.
Speaker Change: Under the presumption that the new administration.
Speaker Change: That's pretty clearly as it relates to what theyre going to do with tariffs and other things kind of run out of the gate. So people know where they stand presumably youll start seeing investment in utilization increase.
Speaker Change: But we just.
Speaker Change: As we've said before we've kind of got tired of trying to us.
Speaker Change: Pick that picked at Mo.
Speaker Change: Point in time, Yeah, where things go up.
Speaker Change: Just being conservative about it.
Speaker Change: Gotcha perfect Alright, Thanks, Paul and then.
Robert Reilly: And then, Rob, in the past, you've talked about the company being able to generate sort of a 3% normalized margin. I guess I'm curious, I mean, so much of the rampant NII seems kind of, you know, programmatic through the year. Is that 3%? Is it too ambitious to think that's something that you might be able to hit this year? Or would we have to, you know, is it just going to take a little bit longer than that to develop? Yeah, so yeah, so we've talked about that. We do, we don't provide NIM guidance, because it's an outcome.
Rob are you in the past you've talked about the.
Speaker Change: The company being able to generate sort of a 3% normalized margin.
Speaker Change: I'm curious I mean, so much of the ramp in NII. It seems kind of programmatic out through the year is that 3%.
Speaker Change: Is it too ambitious to think that's something that you might be able to hit this year or what would we have to.
Speaker Change: Just going to take a little bit longer than that to develop.
Speaker Change: Yeah. So yeah. So we've talked about that we do.
Speaker Change: We don't provide NIM guidance, because its an outcome we.
Robert Reilly: We do expect NIM to continue to increase through the course of 2025. You know, we've approached that 3% level in the past. And, you know, I think it's logical to assume that we get close to that All right. Perfect. Thank you very much. I appreciate it.
Speaker Change: We do expect NIM to continue to increase through the course of 2025.
Speaker Change: Yeah, we've approached that 3% level in the past and you know I think it's logical.
Speaker Change: To assume that we get close to that.
Speaker Change: Okay.
Speaker Change: Alright, perfect. Thank you very much appreciate it.
Speaker Change: Sure.
Erika Najarian: Thank you. Our next questions come from the line of Erika Najarian with UBS. Please proceed with your question. Yes, thank you so much. Rob, just to clarify, just because as you can imagine, this is a big conversation that was happening with your investors this morning. You know, in terms of your response to Scott's question, based on the mechanics, you can approach that 3% as an exit rate for the year. Again, like I know you don't give a NIM guide, but it seems like from a mechanical standpoint, that's what I just wanted to confirm that's what you're telling us.
Speaker Change: Thank you our next questions come from the line of Erika Najarian with UBS. Please proceed with your questions.
Speaker Change: Yes. Thank you so much Rob just to clarify just because as you can imagine.
Speaker Change: This is a a big conversation that was happening with your investors. This morning.
Speaker Change: In terms of your response to Scott's question.
Speaker Change: Based on the mechanics, you can approach at 3% as an exit rate for the year again like I know you don't give them and guide, but it seems like from a mechanical standpoint, that's why I just wanted to confirm that's what you're telling us.
Robert Reilly: And in terms of the two cuts they have embedded in your guide, I think a few folks have maybe one cut. Does that really matter if you have one cut or two in terms of your outlook for net interest and So, so the second question first. No, it doesn't. We're very neutral to rates. We've said that. So, 25 is sort of locked in from a, from a rate perspective.
Speaker Change: And in terms of the two cuts they havent bedded in your guide I think a few folks have maybe one cut does that really matter. If you have one cut or two in terms of your outlook for net interest income.
Speaker Change: So I'm sorry, the second question first no. It doesn't we're very neutral to rates. We said that so 25 is sort of locked in from a from a rate perspective.
Robert Reilly: And then on your first question, yes, confirmed, you know, approaching 3% by the end of 25. Great.
And then on your first question, yes confirmed.
Speaker Change: Approaching 3% by the end of 'twenty five.
John Mcdonald: Great and my follow up question here is you know how bill maybe you think about the demand construct for lines of credit in the rate environment that the forward curve is pricing in so with a higher neutral rate than we expected you know and maybe some flatness you know we don't have that now.
William Demchak: And my follow-up question here is, you know, how, Bill, maybe you think about the demand construct for lines of credit in the rate environment that the forward curve is pricing in. So, you know, with a higher neutral rate than we expected, you know, and maybe some flatness, you know, we don't have that now, but maybe some flatness from SOFR to the belly. How do you expect that in terms of impacting whether or not companies, you know, seek out to finance their projects through lines of credit versus going to the capital markets and how much of that dynamic, you know, is embedded into your more conservative guide?
John Mcdonald: But maybe some flatness from so far to the Bally, how do you expect that in terms of impacting whether or not companies.
John Mcdonald: Seek out to finance.
John Mcdonald: Finance their projects through lines of credit versus going to the capital markets and how much of that dynamic.
John Mcdonald: It is embedded into your more Conservative guide.
William Demchak: The conservative guy, it is. simply because we don't have visibility and what would otherwise cause the change yet. The nuance of whether somebody goes to capital market or line of credit is a function of price. I mean, we, you know, line of credit can be swapped into fixed and capital markets can issue fixed. I don't know that that's a particular Driver. Higher rates generally. would have and have had I imagine you know, an impact on the total amount of line somebody carries just because carrying inventory and working capital is more expensive. You know, and I'm sure that's at least part of the impact as to why utilizations are lower today than they were pre COVID.
John Mcdonald: The Conservative guide is.
John Mcdonald: Simply because we don't have visibility in what would otherwise cause that change yet.
John Mcdonald: New answer whether somebody goes through capital market.
John Mcdonald: Your line of credit as a function of price I mean week lineup.
John Mcdonald: Your line of credit can be swapped into fixed capital markets can issue fixed so I don't know that thats in particular.
Driver.
John Mcdonald: Higher rates generally.
John Mcdonald: You would have and have had I imagine.
John Mcdonald: Yeah.
John Mcdonald: Yeah.
John Mcdonald: The impact on the total amount of line and somebody curious just because carrying inventory and working capital is more expensive.
John Mcdonald: I'm sure that's at least part of the impact is to why Utilizations are lower today than they were pre COVID-19.
John Mcdonald: Yes.
Operator: Got it, thank you. Thank you.
John Mcdonald: Got it thank you.
Speaker Change: Thank you our next questions come from the line of John Pan Kearney with Evercore ISI. Please proceed with your questions.
John Pancari: Our next questions come from the line of John Pancari with Evercore ISI. Please proceed with your question. Morning, just on the on the fee income side, want to see if you can unpack the 5% growth outlook a bit for 2025. Maybe just looking at the most noteworthy drivers. I know you've talked about the capital markets opportunity quite a bit in the past, as well as treasury and cash management and other areas. So if you can just help us and think about what are the largest drivers of that 5% outlook. Thanks. Yeah, sure. Just in the order of, you know, how we report our fees by categories for 2025, asset management, we would expect to be up mid single digits, capital markets and advisories up mid to high single digits, card and treasury management up mid to high single digits.
John Pan: Good morning.
Speaker Change: Just on me on the fee income side wanted to see if you can unpack the 5% growth outlook a bit for 2025, maybe.
Speaker Change: Looking at the most noteworthy drivers I know you've talked about the capital markets opportunity quite a bit in the past as well as.
Speaker Change: Treasury and cash management is another area. So if you can just help us think about what the.
Speaker Change: Largest drivers of that 5% outlook. Thanks.
Yes sure.
Yeah, just in the order of how we report our fees by categories for 2025 asset management, we would expect to be up mid single digits.
Speaker Change: Capital markets and advisory is up mid to high single digits.
Speaker Change: Card and Treasury management up mid to high single digits led.
Robert Reilly: Lending and deposit services, you know, up maybe low single digits, and then lastly, mortgage, we expect to be off, you know, approximately 10% or even more.
Speaker Change: Lending and deposit services up maybe low single digits.
Speaker Change: And then lastly, mortgage we expect to be off approximately 10% or even more that's a small component, but that's no.
Robert Reilly: That's a small component, but that's, you know, that's our best thinking at the moment. Got it, Rob. Thanks for all that. That's helpful.
Speaker Change: That's our best thinking at the moment.
Speaker Change: Got it Rob Thanks for all that that's helpful. And then separately on capital on the buyback front I mean, you're at 10, 5% coupon level you've bought back.
Robert Reilly: And then separately on capital, on the buyback front, I mean, you're at the 10.5% to ET1 level, you've bought back $200 million in the fourth quarter. How should we think about a reasonable pace as you look at 2025? And if the $200 million level appears reasonable, could that level be sustained if you do see that pickup in loan growth from your conservative, off of your conservative expectation? Yeah, I think, yes, the answer to that second part is yes. So we can sustain that. And, and the current plan is to continue at the levels that we've been doing.
Speaker Change: $200 million in the fourth quarter, how should we think about a reasonable pace. So if you look at 2025.
Speaker Change: If the 200 million level appears reasonable could that level be sustained if you do see that pick up in loan growth from your conservative off of your conservative expectation.
Speaker Change: Yeah I think.
Speaker Change: Yes, the answer that second part is yes, we can sustain that and in the current plan is to continue at the levels that we've been doing you saw $200 million and they are in the fourth quarter. So yeah between 100 and $200 million is where we've been averaging and that's what I would expect going forward.
Robert Reilly: You saw 200 million in the in the fourth quarter. So in between 100 and 200 million is where we've been averaging. And that's what I would expect, you know, going forward. Okay, great. Thanks, Rob.
Speaker Change: Forward.
Speaker Change: Yeah.
Speaker Change: Okay, great. Thanks, Rob.
Speaker Change: Sure.
Michael Mayo: Thank you. Our next questions come from the line of Mike Mayo with Wells Fargo. Please proceed with your question. Hey, Bill. I guess I've been asking this question since the last... three or four calls, so why break the streak? Loan growth, so you're giving your NII guide assuming not much loan growth, just average. I know you're getting out of the forecasting business and so you just say it's basically zero and here's your NIA guide and you're guiding for 400 base points of operating leverage and that's that. Having said that, with all the caveats and the answers you gave before, what do you think is really happening?
Speaker Change: Thank you. Our next question will come from the line of Mike Mayo with Wells Fargo. Please proceed with your questions.
Mike Mayo: Hey, Bill.
Mike Mayo: I guess I've been asking this question, but the last.
Speaker Change: Three or four calls so why break the streak loan growth.
Speaker Change: So you are giving your NII guide, assuming not much loan growth with average.
Zero.
Speaker Change: And I know you're getting out of the forecasting business and so you just say, it's basically zero and here's your NII guide and you're guiding for 400 basis points of operating leverage and that's that having said that with all the caveats and the answers you gave before what do you think is really happening is all the loan growth just going to debt capital market.
William Demchak: Is all the loan growth just going to debt capital markets or are the corporations just luggage or what's going on? It's not going to capital markets. I mean, there's a part of our book in the large corporate space where, you know, utilization has probably dropped more than most because of, you know, their ability to hit capital markets, but it's, you know, across all the sub segments from smaller commercial to middle market, you know, through to even our specialty businesses and asset based finance for whatever reason, like utilization is lower. You know, part of that's got to just be total cost.
Speaker Change: Or are the corporation, just luggage or what's going on.
Speaker Change: But it's not going to capital markets I mean, theres, a part of our book and the large corporate space where.
Speaker Change: You know utilization is probably dropped more than most because of their ability to hit capital markets, but it's across all the sub segments from smaller commercial to middle market.
Speaker Change: No.
David: True David.
David: Specialty business. This is an asset based finance for whatever reason like utilization is lower.
David: You know part of that's got to just be total cost part of it's gotta be we'd been running into a lot of uncertainty right. We've been calling for this landing for the better part.
William Demchak: Part of it's got to be we've been running into a lot of uncertainty, right? We've been calling for this landing for the better part of two years, and people would like to have landed and got on with it. I think, you know, before they invest a lot of capital, I think, you know, three quarters ago, if not four, we kind of said, we're going to quit forecasting this. We don't need it. We showed you numbers, beat those numbers. And loan growth kind of ended up where we thought three or four quarters ago, which was not great.
David: Two years and people would like to have landed and got on with it I think.
David: They invest a lot of capital I think you know the.
David: Okay.
David: Three quarters ago, if not for we kind of said.
David: We're going to quit forecasting is we don't need it we showed you numbers.
David: Those numbers.
William Demchak: I don't know that it's going to be not great in 25. I just don't know what it's going to So you can plug in any number that you want, or importantly, when it's going to be.
David: Loan growth kind of ended up where we thought three or four quarters ago, which was not great.
David: I don't know that it's going to be not great.
David: And in 25, I, just don't know what it's going to be so you can plug in there any number that you want or importantly, when it's going to be I mean, the important thing to remember Mike is that we're not kind of behave differently than any other bank were not changing what we're doing and we're not getting out we're not getting in we're not.
William Demchak: Yeah, I mean, the important thing to remember, Mike, is that we're not going to behave differently than any other bank. We're not changing what we're doing. We're not getting out. We're not getting in. We're not, you know, we have, we have a giant stock of Revolving credit will move with the market and I you know, I just don't want to promise you a number that has a big unknown. Got it.
David: We have we have a giant stock of revolving credit that will be.
David: With the market.
David: I just don't want to promise you a number that.
David: How is the big unknown is good.
David: Got it.
William Demchak: And then just as a follow up, Bill, you've never been shy, whether you testified to Congress or with your views and your CEO letters. There's a new administration. I think they're listening. So if you were talking to them and you do indirectly through the of the different industry groups, what would you hope to see changed as it relates to the regulation at PNC? couple of different things. One is I think You know, the government has to. get off of the assumption that somehow the banking industry is the piggy bank to cure the ills. You know, rebating and all the other stuff.
David: And then just as a follow up bill you've never been shy whether U S.
David: Testified to Congress are with your views and your CEO letters.
David: There's a new administration.
David: I think they're listening.
David: If you were talking to them and you do indirectly through the.
David: The different industry groups, what would you hope to see changed.
David: As it relates to the regulation.
David: N sake.
David: Alright.
Speaker Change: And a couple of different themes, one is I think.
Speaker Change: The government has to.
Speaker Change: Get off of the assumption that somehow the banking industry, the piggy bank to cure the hills in the world.
Speaker Change: All of the all of the silliness around cancellation fees.
Speaker Change: Yes.
You know rebating and all the other stuff.
William Demchak: I think they got to get back to following the law. And I think that will be a good thing. And of course, the industry is sued on a number of those proposals. And I would expect that we'll have some success with that. I think they need to focus, you know, and We repeatedly emphasize this notion of focus on the core risks. We spend too much energy on things. do not affect the safety and soundness of a banking institution and not enough. as we saw a year ago on things that do. You know, I would hope to see that we'll see some, some, some change inside of that there.
Speaker Change: They've got to get back to following the law and I think that will be a good thing and of course the industry has sued on a number of those.
Speaker Change: Proposals.
Speaker Change: What do you expect it will have some success with that.
Speaker Change: I think they need to focus.
Speaker Change: And you.
Speaker Change: We've repeatedly emphasized that this notion of focus on the core risks, we spent too much and energy things.
Speaker Change: Do not affect the safety and soundness of a banking institution that not enough.
Speaker Change: We saw a year ago are things that do.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: I would hope to see that we'll see some some some changes inside of that.
William Demchak: At some point, they'll redo Basel three. You know, my best guess is that'll be a neutral outcome. You know, I don't think it's gonna cause things to go lower. I don't think it's gonna cause them to go up. There's gonna be some changes to the stress test that maybe reduces volatility. But personally, I don't expect big changes in the outcome. Oh. And that's kind of it, you know, let us do our job. You know, the banking industry does a lot of good for this country. And I, you know, and I and I think by and large, the industry is in a really good place over the next couple of years.
Speaker Change: Or at some point they'll redo Basel III My best guess is that it'll be a neutral outcome.
Speaker Change: I don't think its going to cause things to go lower I don't think it's going to cause them to go up theres going to be some changes to the stress test that may be reduces volatility, but personally I don't expect big changes in the outcome.
Speaker Change:
Speaker Change: And that's kind of it they don't let us do our job.
Speaker Change:
Speaker Change: <unk> industry does a lot of good for this country.
Speaker Change: Goodbye.
Speaker Change: And I think biologic industries in a really good place over the next couple of years.
Operator: All right, great. Thank you.
Speaker Change: Alright, great. Thank you.
Speaker Change: Thank you. Our next question does come from the line of Betsy <unk> with Morgan Stanley. Please proceed with your questions.
Betsy Graseck: Our next question has come from the line of Betsy Graseck with Morgan Stanley. Please proceed with your question. Hi, thanks so much. Good morning. So first question, just one more on the loan growth. I wonder how much of the C&I weakness is a function of paydowns, right? Because, you know, companies can go term out, pay down their C&I loan, but now with SOFR three-year, two-year, three-year, four-year, five-year portion of the curve pretty flat. would, is there any changes going on there? Could you discuss how much that is impacting the overall number? I don't think at all.
Betsy: Hi, Thanks, so much.
Speaker Change: Good morning. So first question just one more on the loan growth.
Speaker Change: I wonder how much of the C&I weakness is a function of pay downs right.
Speaker Change: You can go and term out pay down their C&I loan, but now with so far three year two year, three or four year five year portion of the curve pretty flat.
Speaker Change: Is there any changes going on there could you discuss how much that is impacting the overall number.
Speaker Change: I don't think at all.
William Demchak: I mean, you know, the shape of the curve is largely irrelevant. A company figures out how long they want to borrow for and whether they want to do it, you know, fixed or floating. And they can achieve that either through a bond in the capital market swapped or a loan that's swapped the other way or whichever way they want to do it. So I, I think this is raw demand for capital. I think, as I said, for large corporates, the spread component in the capital markets is really attractive. So, you know, that's driven by spread and demand in public markets, as opposed to some notion of expense, you know.
Speaker Change: I mean, you know that the shape of the curve is.
Speaker Change: Largely irrelevant accompany figures out how long they want to borrow borrow a foreign whether they wanted to do it.
Speaker Change: Fixed or floating and then they can achieve that either true a bond in the capital markets swapped or alone the swap the other way or whichever way they want to do it. So I think this is raw demand for capital I think as I said for large corporates.
Speaker Change: The spread component in the capital markets is really attractive so that's driven by spread and demand and public markets as opposed to some notion of expense.
William Demchak: All right. Okay.
Speaker Change: Alright, okay.
Robert Reilly: So really, originations are really low. Okay. And God thank you. But that's not right either. Originations are high, utilization... Yeah, so Betsy, our unfunded commitment growth has been strong all year, including in the fourth quarter. So those are lines that our commercial customers are establishing that they're paying for. which is probably the strongest indication of borrowing intent.
Speaker Change: Originations are really low okay.
Speaker Change: Excellent.
Speaker Change: But that's not right either originations or high utilization as those yeah. So Betsy R. R.
Speaker Change: Unfunded commitment our growth has been strong all year, including in the fourth quarter. So those are lines that our commercial customers are establishing that they're paying for.
Speaker Change: Which is probably the strongest indication of.
Speaker Change: Borrowing intact.
Robert Reilly: Okay, so separate question just on liquidity. I think, Rob, you mentioned, you know, the liquidity number that you've got at the Fed and with rate cuts anticipated coming up, and I know your LCR ratio is super high. You have a really, really strong liquidity. You're best in class on liquidity by far. I'm just wondering, are we leaving some money on the table by keeping all that there? Is there any, within your outlook for NII this year, do you keep all that liquidity at the Fed this year, or is there some redeployment that's expected at some point?
Rob Reilly: Okay. So separate question just on liquidity I think Rob you mentioned the liquidity number that you've got at the fed and.
Rob Reilly: With rate cuts anticipated is coming up and I know your LCR ratio Super high.
Rob Reilly: Really really strong liquidity, you're best in class on liquidity by far.
Rob Reilly: I'm just wondering are we.
Rob Reilly: Leaving some money on the table by keeping all of that there.
Rob Reilly: Is there any.
Rob Reilly: Within your outlook for NII. This year do you keep all that liquidity at the fed this year or is there some redeployment thats expected at some point.
Robert Reilly: That's actually a fair, that's actually a fair question. You know, if we knew with certainty that there really wasn't going to be any loan growth, then we would probably deploy the cash in a different form that would have a slightly higher yield. So there is an interplay there that probably isn't in our guidance and is fair. Okay, thank you. and reflects our optimism, even though it's not in our guidance, right? Yeah, right.
Rob Reilly: That's actually that's actually a fair question.
Rob Reilly: You know if we knew with certainty that there really wasn't going to be any loan growth. Then we would probably deploy that cash in a different forum that would have a slightly higher yield. So there is an interplay there that probably isn't in our guidance. It is fair.
Speaker Change: Okay. Thank you.
Speaker Change: And reflects our optimism, even though it's not in our guidance.
Speaker Change: Right.
Speaker Change: Right.
Gerard Cassidy: Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Hi, Bill. Hi, Rob. Can you guys share with me, I understand the competition from the capital markets, you guys have been dealing with this for 40 years. The private credit area seems to have obviously gained a lot of attention these last couple of years. And I kind of wonder, when Basel III endgame originally came out in July of 23, a lot of banks had to kind of reassess their risk-weighted assets. We heard about risk-weighted asset diets and stuff, and I'm wondering if the private credit guys took advantage of that.
Speaker Change: Thank you. Our next question is come from the line of Gerard Cassidy with RBC capital markets. Please proceed with your questions.
Speaker Change: Hi, Bill Hi, Rob.
Speaker Change: Hey, Gerard.
Speaker Change: Can you guys share with you know I I understand you know the competition from the capital markets you guys have been dealing with this for 40 years.
Speaker Change: The private credit area seem to obviously gained a lot of attention in these last couple of years and I kind of wonder.
Speaker Change: Basel III end game originally came out in July of 'twenty, three a lot of Bang center kind of reassess the risk weighted assets, we heard about risk weighted asset diets and stuff and I'm wondering if the private critical eyes took advantage of that do you bump into them much out and maybe in the large corporate you know my Bill, but do you guys see them in the middle market.
William Demchak: Do you bump into them much out – maybe in the large corporate you might build, but do you guys see them in the middle markets at all? Or no, it's really just the large stuff that they tend to swim in that ocean? That's it.
Speaker Change: Because at all or no. It's really just the large stuff that they've kind of swimming.
Speaker Change: Ocean.
Speaker Change: The so you're you're hit.
William Demchak: You're you're hitting on two different things. The risk weighted asset diet that many people went on was, you know, structured credit sales, effectively using a credit derivative to ensure some bottom tranche on autos or middle yielding assets, whatever, you know, see, so that was much more of selling the riskiest tranche of some pool of credit I already hold to get regulatory capital arbitrage. The private capital movement of capital basically Moving into credit as the next investment vehicle. You know, it's interesting, we had this conversation with a bunch of bank CEOs at a conference meeting we had where None of us kind of said we ever like we haven't seen a deal we've lost that we want.
Speaker Change: Hitting on two different things, but the risk weighted asset diet that many people went on.
Speaker Change: Was structured credit sales effectively using a credit derivative to ensure some bottom tranche on autos or middle low yielding assets.
Speaker Change: So that was much more about <unk>.
Speaker Change: Selling the riskiest tranche of a pool of credit I already hold to get regulatory capital arbitrage.
Speaker Change: The private capital movement of capital basically.
Speaker Change: Moving into credit as the next investment vehicles.
Speaker Change: You know it's interesting we had this conversation with a bunch of bank Ceos at AR.
Speaker Change: Congress meeting we had were.
Speaker Change: None of us kind of sudden we ever like we haven't seen a deal we've lost that we wanted.
William Demchak: However, we have seen, you know, we have been competed away at levels that we just wouldn't match, so at the margin it matters. It's one of the reasons You know, at PNC, we formed this partnership with TCW so that in some of those instances, instead of losing the client, in that case, we keep the client, fund them through a different vehicle and keep all the TM and fee related operating. Yeah, today, but it's not, you know, none of that, like, whatever's happening in private credit for all the headlines, that has nothing to do with why our loan grows.
Speaker Change: However.
Speaker Change: We have seen.
Speaker Change: You know we have been competed away at levels that we just wouldn't batch so at the margin. It matters. It's one of the reasons.
Speaker Change: At PNC, we formed this partnership with TCW, so that at some of those instances instead of losing the client in that case, we keep the client fund them through a different vehicle to keep all the T M <unk> operating business.
Speaker Change: Yet today, but it's not you know.
Speaker Change: None of that like whatever's happening in private credit for all the headlines that has nothing to do with why our loan growth.
William Demchak: is, you know, lower than it's been historically. And you guys have been, you know, very strong in the asset back lending area. Do you see other competitors in that arena? Or no, it's the just the traditional asset back lenders that you've competed against for years? We're pretty much it's it's the traditional people. I mean, any, you know, when you talk about asset-backed lending, asset based, it's a big operational business. Hundreds of financial finance. Yeah, it's hundreds of field auditors across the country. It's very difficult for a fund to say, okay, I'm going to enter that business because it's a giant operating business.
Speaker Change:
Speaker Change: Is lower than it's been historically.
Speaker Change: And you guys have been very strong in the asset back lending area do you see other competitors in that arena or no. It's just the traditional asset backed lenders that you've competed against for years.
Speaker Change: We're pretty much it.
Speaker Change: Its the traditional people I mean any.
Speaker Change: When you're talking about asset backed lending.
Speaker Change: As it based its a big operational business.
Speaker Change: <unk>.
Speaker Change: Yeah, it's hundreds of field auditors across the country, it's very difficult for a fun to say, okay. I'm gonna entered that business because it's a giant operating business that goes along with it.
Rob Reilly: It goes And then just as a follow-up, on the rollout of, you talked about, you know, building out the new branches and the plans for doing this, are there, where do you head first? Is it, you know, the Southwest? Is it the West Coast? Or what's the layout that we should expect as you build that out over the next number of years?
Speaker Change: Okay, and then just as a follow up on the rollout of you talked about building out the new branches and the plans for doing this.
Speaker Change: Are there.
Where do you had first is at the southwest it's the west coast or what's the lay out but we should expect.
Speaker Change: As you build that out over the next number of years.
Rob Reilly: Hey Gerard, it's Rob. Yeah, I would say, you know, it's in all the places that you would expect. You know, the recent sort of step up has a focus on South Florida, the Miami area. But of course, in our expansion markets in Texas, Arizona, Colorado, those are the Got it.
Rob Reilly: Hey, Gerard it's Rob Yeah, I would say it is.
Speaker Change: In all the places that you would expect.
Speaker Change: The recent sort of stepped up has a focus on south, Florida Miami area, but.
Speaker Change: But of course in our expansion markets in Texas, Arizona.
Speaker Change: Colorado.
Speaker Change: Those are the places.
Speaker Change: Got it so nothing here in Portland, Maine and Huh.
Rob Reilly: So nothing here in Portland, Maine then, huh? We're going to get back to you on that one. Okay. Thank you, guys.
Speaker Change: Okay.
Speaker Change: Well, let me get back to you on that one.
Speaker Change: Okay.
Speaker Change: As you guys.
Bill Carcache: Thank you. Our next questions come from the line of Bill Carcache with Wolf Research. Please proceed with your question. Thanks. Good morning, Bill and Rob. Following up on the You mentioned, Bill, that you're close to rolling out your online banking platform. Is that in relation to your expansion markets?
Speaker Change: Thank you our next questions come from the line of Bill car Kashi with Wolfe Research. Please proceed with your questions.
Rob Reilly: Thanks, Good morning, Bill and Rob.
Speaker Change: Following up on the.
Rob Reilly: The.
Rob Reilly: You mentioned bill that you're close that you're close to rolling out your online banking platform is that in relation to your expansion markets was hoping you could maybe just speak to how that complements your existing physical and digital channels.
William Demchak: I was hoping you could maybe just speak to how that complements your existing physical and digital channels. All right. Thank you. It's one of the pieces of the puzzle of basically making everything we do cloud native and microservice based. So it'll be a better experience for our customers in the sense that, you know, it's more easily navigable, there's more self-service. But the biggest thing that it does for us is it allows us to change and introduce products on the fly. So, so we, you know, we can pull. You know, what used to be a six-month process to update something on online banking, we can literally do overnight.
Rob Reilly: It's.
Rob Reilly: It's one of the pieces of the puzzle of basically making everything we do cloud native.
Rob Reilly: In micro service based so it'll be a better experience for our customers in the sense that.
Rob Reilly: It's more easily navigable theres more self service.
Rob Reilly: But the biggest thing that it does for US is it allows us to change.
Rob Reilly: Introduced products on the fly.
Rob Reilly: So we know we can pull.
Rob Reilly: You know what used to be a six month process to update something not online banking literally do overnight.
William Demchak: with the nooses. A highly complex, big investment that we've been at for a couple of years, and ultimately it just, you know, it will raise our scores with consumers on online. One of the things. go on a little bit here. You know, when we do customer surveys and get feedback, you know, experience with PNC, we score off the charts on our branch experience.
Rob Reilly: With the new system.
Highly complex a big investment that we've been at for a couple of years.
Rob Reilly: Ultimately it just.
Rob Reilly: It will raise our scores with consumers online one of the things.
Speaker Change: Go on a little bit here, you know when we do customer surveys and get feedback.
Speaker Change: Experience with PNC, we score off the charts on our branch experience and.
Robert Reilly: And we're no better than average with our online and mobile. And we need to do better than average, which is why we're pursuing this.
Speaker Change: There were no better than average with our online and mobile we.
Speaker Change: We need to do better than average.
Speaker Change: Which is why we're pursuing this.
Robert Reilly: That's helpful.
Speaker Change: That's helpful. Rob I wanted to ask if you could discuss what drove the valuation adjustments that led to an increase in reserves for the office portfolio. How are you thinking about the risk of similar adjustments leading to incremental reserve building from here, particularly if we don't get any more cuts.
Robert Reilly: Rob, I wanted to ask if you could discuss what drove the valuation adjustments that led to an increase in reserves for the office portfolio? How are you thinking about the risk of similar adjustments leading to incremental reserve building from here, particularly if we don't get any more cuts? Yeah, so, you know, as I had mentioned, we're adequately reserved in terms of how we look at things. Credit looks good. You know, commercial non-CRE in particular, you know, improved during the quarter, outlook improved, consumer is pretty good. Within the CRE office space, we've got some moving parts there.
Speaker Change: Yeah. So you know as I had mentioned, where we're adequately reserved in terms of that.
Speaker Change: We look at things credit credit looks good.
Speaker Change: In our commercial non CRE in particular improved.
Speaker Change: During the quarter, our outlook improved consumers pretty good within the CRE office space, We've got some moving parts. There. The good news is that the Outstandings are coming down we're managing it and theres. Some idiosyncratic pieces there with our reserves moved a little bit in percentage, but really not a big change there. We just continue to work through it.
Robert Reilly: The good news is that the outstandings are coming down. We're managing it. There's some idiosyncratic pieces there where the reserves moved a little bit in percentage, but really not a big change there. We just continue to work. I think we have every quarter we have the same discussion round. the reserve in the sense that we have a high percentage relative to many of our peers in terms of what we reserve. And we do that largely because there really isn't a market established yet, like a clearing market where properties trade. There just hasn't been that much that has moved.
Speaker Change: I think we have every quarter, we have the same discussion round.
Speaker Change:
Speaker Change: Serve in the sense that.
Speaker Change: Have.
Speaker Change: We have a high percentage relative to many of our peers in terms of what we reserve and we do that largely because there really isn't a market established yet like a clearing market where properties trade. There just hasn't been that much that has moved their spin extensions theres been paydowns their spend.
Robert Reilly: There's been extensions, there's been paydowns, there's been a variety of different things, but there's not a stabilized market, which is why we remain concerned. Well-reserved. And the good news for us, as you know, Bill, it's a small percentage of our overall loans. So you know, there's some lumpiness in there from quarter to quarter. So we actually, our charge-offs on office went down in the fourth quarter from the third quarter. We didn't expect that. We do expect more. So we just need to work through it. That's helpful.
Speaker Change: Variety of different things, but there is there is not a stabilized market, which is why we remain concerned that remain.
Speaker Change: Well reserved and the good news for us as you know.
Speaker Change: Bill, it's a small percentage of our overall loan. So yeah. There is some lumpiness in there from quarter to quarter. So we actually are charge offs on office went down in the fourth quarter from the third quarter. We didn't expect that we do expect more so we just need to work through it.
That's helpful. Thanks, if I could squeeze in one more on your hedging strategy can you discuss the uptick in forward starting swaps that we saw this quarter and.
Robert Reilly: Thanks.
Robert Reilly: If I could squeeze in one more on your hedging strategy. Can you discuss the uptick in forward starting swaps that we saw this quarter and how you're thinking about potentially putting on new forward starters as we look ahead from here? Yeah. I mean, it's it's actually pretty straightforward. So our our roll off of fixed rate assets, you know, we put that out publicly before. Securities, or loans. When we look at the forward curve available, you know, at any given point in time, we can choose to lock in that rate on that replacement yield. So if it's a treasury that's going to mature in a year and a half with a 2% coupon, I can effectively choose to buy that treasury, you know, forward at a 4.5% coupon.
Speaker Change: How are you thinking about potentially putting on new forward starters is as we look ahead from here.
Speaker Change: Yeah.
Speaker Change: I mean, it's actually pretty straightforward so are our roll off a fixed rate assets and we've put that out publicly.
Speaker Change: Yes.
Speaker Change: Their securities or loans.
Speaker Change: When we look at the forward curve available.
Speaker Change: Given point in time, we can choose to lock in that rate on that replacement yields. So if it's a treasury that's going to mature in a year and a half with a 2% coupon I can effectively choose to buy that treasury.
Speaker Change: Forward at a four 5% coupon.
Robert Reilly: And so we've been gradually biting off. That's why we say we're, you know, really comfortable with where we are on 25, because we've used swaps like that to effectively lock in these maturing. Fixed rate assets. And we continue to look at and will start biting off pieces of 26 and 27 because it continues. What we see through 25 ought to continue through the next couple of years. If rates follow the forward curve, so there's big opportunity there and you'll you'll see us using that tool to Lock some of that in. throughout the balance of 25 as we lock in the future years.
Speaker Change: And so we've been gradually biting off that's why we say we are.
Speaker Change: Really comfortable with where we are in 25, because we use swaps like that to effectively lock in these maturing.
Speaker Change: Fixed rate assets.
Speaker Change: And we continue to look at and we'll start biting off pieces of 26 and 27, because it continues what we saw.
Speaker Change: <unk> through 'twenty five ought to continue through the next couple of years.
Speaker Change: If rates follow the forward curve, so there's big opportunity, there and you'll see us using that tool to two.
Speaker Change: Lock some of that in overtime.
Speaker Change: Throughout the balance of 25% as we lock in the future years, yes.
Robert Reilly: Yes. That's helpful.
That's helpful. Thank you for taking my questions.
Operator: Thank you for taking my question.
Speaker Change: Alright.
Matt O'connor: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone. Our next questions come from the line of Matt O'Connor with Deutsche Bank. Please proceed with your question. Good morning. Can you guys remind us, do you have a targeted capital level, either on a stated DET1 or adjusted for ASCI?
Speaker Change: Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of Matt O'connor with Deutsche Bank. Please proceed with your questions.
Speaker Change: Good morning can you guys remind us do you have any targeted capital level either on a stated it tier one or adjusted for CRE.
Robert Reilly: We don't, hey Matt, it's Rob, we don't have a stated target, but you know, obviously we continue to build levels, we're at 10.5 CQT1, 9.2 on the revised, our minimum requirement is 7, so you know, we've got a lot of flexibility, but we don't have an explicit target, and part of that is because the rules are still in flux. Okay, yeah, I mean, it seems like I know it's been kind of covered, but it was impressive that the adjusted capital was stable despite the moving rate. So you have a lot of disclosure on the securities book, the duration didn't really extend.
Speaker Change: We don't say, Hey, Matt, it's Rob, but we're not we don't have a stated target.
Speaker Change: Obviously, we continue to build levels.
Speaker Change: Or turn and a half CET 192 on our revised our minimum requirement seven so we've got a lot of flexibility.
Speaker Change: The ability, but we don't have an explicit target and part of that is because the rules are still in flux.
Speaker Change: Mhm, Okay, Yeah, I mean, it seems like I know, it's been kind of covered but it was impressive that the adjusted capital was stable. Despite the move in rates. So you gave a lot of good disclosure on the securities book the duration didn't really extend.
Robert Reilly: So it feels like we've sluggish long growth and, you know, your buyback assumptions that the capital ratios are continuing to build off already high levels. Yes. Yeah.
Speaker Change: So it feels like.
Speaker Change: Well I guess loan growth and.
Speaker Change: Your buyback assumptions that the capital ratios will continue to build off the already high levels.
Speaker Change: Yes, yes.
Speaker Change: Yes.
Robert Reilly: And then separately on the expenses, I mean, obviously, the operating leverage is strong, but the kind of 1% growth includes, you know, some of the lumpies in the base, and I guess the punchline is, on a core basis, the expenses are going up 3%, and obviously, you're leaning in to some areas on investment. Is that kind of a good medium-term run rate, or is it just maybe a step up for a short period of time as you fully load those expansion efforts? I think you've got I think you got a handle on it. You know, we got it up to the 1% off the reported numbers, just because it's easier that way, as we talk about it through the balance of 25.
Speaker Change: And then separately on the expenses I mean, obviously the operating leverage is strong.
Speaker Change: But the kind of 1% growth includes some of the Lumpiness and in the base and I guess the punch line is on a core basis. The expenses are going up 3% and obviously you're leaning in some areas on investment.
Speaker Change: Is that kind of a good medium term run rate or is it just maybe a step up for a short period of time as you.
Speaker Change: Fully load those expansion efforts.
Speaker Change: I think you've got I think you got a handle on it.
Speaker Change: We got it up to the 1% off the reported numbers, just because it's easier that way.
Speaker Change: As we talk about it through the balance of 25% but expense.
Speaker Change: Expenses up in that 3% range is typical for us.
Robert Reilly: But, you know, expenses up in that 3% range is typical for us. And obviously reflects on a core basis obviously reflects a lot of investment. It's importantly the investment that we are making. is not at all catch up. to something we should have done. This is, you know, new branches, it's new technology, it's larger data centers that are more resilient. It's, you know, it's, it's everything positioning us to accelerate our organic growth. So these are all dollars spent to make money. Got it. Makes sense. Okay. Thank you.
Speaker Change: And obviously it reflects on.
Speaker Change: On a core basis, obviously it reflects a lot of investment yes.
Speaker Change: And importantly, the investment that we're making.
Speaker Change: <unk> is not at all catch up to something we should have done. This as you know new branches, it's new technology its larger data centers that are more.
Speaker Change: More Brazilians.
Speaker Change: Yes.
Speaker Change: It's everything positioned us to.
Speaker Change: To accelerate our organic growth.
Speaker Change: So these things are all of them. These are all dollars spent to make a buck.
Speaker Change: Funny [laughter].
Speaker Change: Got it makes sense okay. Thank you.
Speaker Change: Thank you our next questions come from the line of Ebrahim in Pune Waller with the Bank of America. Please proceed with your questions.
Ebrahim Poonawala: Our next questions come from the line of Ebrahim Poonawala with the Bank of America. Please proceed with your question. Hey, good morning. I guess, maybe Bill, remind us of your thoughts around, we talked about regulations earlier. Absent significant pickup in loan demand, it doesn't seem like the operating backdrop on the revenue side is going to be that great for the banks.
Ebrahim: Hey, good morning.
Speaker Change: I guess good morning.
Ebrahim: Maybe bill.
Ebrahim: Yeah.
Ebrahim: Do you mind us.
Speaker Change: Oh fewer taught at all as we talked about regulations earlier.
Ebrahim: Absent.
Ebrahim: Significant pick up in loan demand it doesn't seem like the operating backdrop on the revenue side is going to be that great for the banks.
William Demchak: How does that inform your view in terms of the window of opportunity from a regulatory political backdrop to do a transformational M&A? And you've talked about it in the past in terms of competing with the big banks, having sort of a national presence. and like what are the odds where those opportunities come up and you actually tap into that? Understanding will be disciplined. You know the math. So I appreciate all of that. I think, look, at the margin, it's... You know, my guess is it's gotten easier to get a deal approved, although I think we could have been approved with the old administration.
Ebrahim: How does that inform your view in terms of the.
Ebrahim: Window of opportunity from a regulatory political backdrop produce a transformational M&A and you've talked about it in the past in terms of competing with the big banks, having sort of a national presence.
Ebrahim: Like what are the odds when those opportunities come up and you actually tap into that.
Ebrahim: Understanding will be disciplined you know the math so.
Ebrahim: I appreciate all of that.
Ebrahim: Yes, I think.
Ebrahim: Look at the margin.
Ebrahim: My guess is it's gotten easier to get a deal approved although.
Ebrahim: I think we could've been approved with the old administration.
William Demchak: you know, the challenge is and you're gonna hear this on every earnings call. Everybody's an acquirer. Nobody's nobody's a seller. There's, you know, wind at the back on bank earnings is a function of, you know, the rate turnover. Credit's not bad, so I think the mindset you run into is, hey, we'll hang out, we'll make more money next year, and we'll worry about whether we have a long-term franchise somewhere later. It's not our problem today, and that's an environment where, as a You know, an honest buyer that's growing. You know, it's tough to force an outcome and we don't tend to try to do that.
Ebrahim: You know the challenge is and you're going to hear this on every earnings call everybody's an acquirer nobody's nobody is a seller there's wind at the back of bank earnings as a function of.
Ebrahim: The rea turnover.
Ebrahim: Credits not bad so I think the mindset you run into is Hey, we'll hang out we'll make more money next year and we'll worry about whether we have a long term franchise somewhere later start our problem today.
Ebrahim: And that's an environment where is it.
You know an honest buyer that's growing.
You know its tough to force an outcome and we don't intend to try to do that.
William Demchak: Got it, all right, so. Your response is like short-termism overtakes shareholder value creation, in terms of... I think... Yes, so I think. You know, the structural issues in the banking industry are just, you know, violently apparent when you look at the deposit shifts to the largest banks, the growth in DDA accounts. By the way, we grew DDA this year at a pace we haven't maybe ever. But we're one of a handful of banks across the whole industry that was actually able to do that. And so when you just look at the fundamentals underlying, you know, the amount of, you know, the cost of funding, the increased balances of broker deposits.
Ebrahim: Got it alright.
Speaker Change: Yeah, the sponsors like short term ism or take shareholder value creation in terms.
Look I think.
Speaker Change: Yes, so I think.
Speaker Change: The structural issues in the banking industry are just you know.
Speaker Change: Violently apparent when you look that the.
Speaker Change: As it shifts to the largest banks the growth in DDA accounts by the way we grew DDA. This year at a pace, we haven't maybe ever.
Speaker Change: But we're one of a handful of banks across the whole industry that was actually able to do that.
Speaker Change: And so when you just look at the fundamentals underlying the amount of the cost of funding.
Speaker Change: Kris balances of brokered deposits.
William Demchak: a lack of fee income and products to sell that some of the smaller banks run into. You know, you ought to see consolidation. Yeah, we're in a period where everybody thinks they're going to be the consolidators.
Speaker Change: The lack of fee incumbent products to sell that some of the smaller banks run into you ought to see consolidation yet we're in a period, where everybody thinks they're going to be the consolidator. So I don't know what's going to happen.
William Demchak: So I don't know what's going to happen.
William Demchak: And I guess maybe just a quick one, following up on credit quality, if we don't get any Fed rate cuts, employment holds up okay, is it your sense that credit quality is generally okay? There are no real stress points in that backdrop? Yeah, I think that's I think that's right. Our expectation My expectation for a while is kind of playing out. We're gonna, I don't think, you know, even if they get a couple of cuts, we're gonna be there for a while. And I think the back end's under pressure. So what happens through time is a lot of the locked-in, low-interest rates that corporate America has done, you know, will roll off and you'll see their debt coverage ratios decline a bit down the road, but not their solvency, not actual loss content because of the strength of the economy.
Speaker Change: And I guess, maybe just a quick one following up on credit quality.
Speaker Change: Don't get any fed rate cuts employment holds up okay.
Speaker Change: Well is it your sense that credit quality is generally okay. There are no real stress points and does that go.
Speaker Change: Yeah, I think that's I think that's right our expectation.
Our expectation for a while is kind of playing out we're going to I don't think.
Speaker Change: Even with they get a couple of cuts we're going to be there for a while and I think the backend is under pressure.
Speaker Change: So what happens through time, so a lot of the locked in low interest rates. The corporate America is done.
Speaker Change: And it will roll off and you'll see their debt coverage ratios decline a bit down the road.
Speaker Change: But not their solvency not actual loss content because of the strength of the economy. So I think were absolutely fine.
William Demchak: So I think we're absolutely fine.
Operator: I, you know, bluntly, I think the Fed has landed this and we're in a good place. Thank you.
Speaker Change: Yeah, I think I think the fed has landed this we're in a good place.
Speaker Change: Thank you.
Speaker Change: Yep.
Speaker Change: Thank you there are no further questions at this time I would now like to hand, the call back over to Bryan Gill for closing comments.
Bryan Gill: There are no further questions at this time.
Bryan Gill: I would now like to hand the call back over to Bryan Gill for closing. Well, thank you, Daryl, and thank you all for joining our call today and your interest in PNC, and please feel free to reach out to the IR team if you have any follow-up questions. Thanks, everybody.
Speaker Change: Thank you Daryl and thank you all for joining our call today and your interest in P&C.
Speaker Change: Please feel free to reach out to the IR team. If you have any follow up questions.
Operator: Thank you.
Speaker Change: Thanks, everybody. Thank you.
Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.
Operator: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
[music].