PNC Financial Services Group Inc Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Betsy Graseck - Morgan Stanley - Analyst : So on NII, I know you guided to the upper end of the range even though you've got slower loan growth clearly due to your NIM improving, at least that's one driver. There's others as well. I just wanted to understand how you're thinking about the securities restructuring from here. Is this something that you would consider continuing, or is it -- we should look at it as a one-off from using the Visa gains? And I ask just from a context of trying to think through NIM trajectory from here.

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay, great. And then could you speak to how you're thinking about deposit, pricing, and levels? I mean, clearly there was tax-related outflows and things like that this quarter. And with loan growth being muted, should we be anticipating deposits stable to down, or are you going to be out there trying to get deposit growth? Just, again, asking from the context of how we should think about deposit pricing as we work through our models.

Question: John Pancari - Evercore ISI - Analyst : On your NII outlook, it's good to hear the NII inflection and the components there. Excluding the $70 million benefit from the securities repositioning in the back half of this year, I mean, it appears that the underlying NII run rate for the back half was guided a bit lower. Is that mainly loan growth that's the driver? I mean, if you could just talk through that a little bit in terms of the factors impacting that run rate.

Question: John Pancari - Evercore ISI - Analyst : Okay. All right. Now thanks for the clarification. It helps. And then just separately on the capital front. Clearly, the AOCI benefit from the securities repositioning is certainly noted. How does that -- how do you feel now in terms of the pace of buybacks as you look out just given where you stand now on CET1 and from a fully phased-in? How does that make you feel about the pace of buybacks? Are you going to remain at the $100 million pace per quarter or possibly accelerate? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 2:00PM, PNC.N - Q2 2024 PNC Financial Services Group Inc Earnings Call

Question: Erika Najarian - UBS - Analyst : Going back to slide 9, I presume that the stabilization in deposit rate paid, which is quite notable as part of the upgrade of the core NII guide even without the restructuring, and you answered, Rob, Betsy's question, I gather, on a balance standpoint. But perhaps give us a sense on how you think deposit rate paid will trend from here and maybe under the scenario of rates staying where we are versus the scenario of what the forward curve is pricing and how quickly you may be able to reprice.

Question: Erika Najarian - UBS - Analyst : Got it. And my second question refers back to slide 6 in terms of the forward starters. When I look back at your 10-Q disclosure, it seems that you're largely neutral to interest rates. And I know that your and Bill have talked a lot about the different factors that drive the inflection point in the Nike Swoosh. I'm wondering if the addition of the $18 billion in forward starters with the received fixed of 4.31%, does that impact the magnitude of the Swoosh for 2025?

Question: Erika Najarian - UBS - Analyst : Bill, I think that's such a good point because I think when people are thinking of fixed asset repricing, sometimes they misthink about the 5.25% as opposed to whatever. It could be at 4%, right, by the end of next year. And to your point, you've locked in at 30.

Question: Scott Siefers - Piper Sandler - Analyst : Rob, I was hoping you could maybe touch on major fee components in light of the softer expectations. I mean, it sounds like it's just a -- or mostly a function of mortgage which sort of [it is what it is]

Question: Scott Siefers - Piper Sandler - Analyst : I'm just curious to hear what you think is going well, what will need heavy lift, that kind of thing.

Question: Scott Siefers - Piper Sandler - Analyst : And then I wanted to ask a little bit of a kind of fine pointed one on loan growth. I think, Bill, in your prepared remarks, you noted the introduction of your first new credit card in a while as well as plans to introduce more. Can you just contextualize your aspirations for that business and the path to get there over time?

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : Just maybe raw just -- it looks like you've locked in a lot of asset repricing. As we think about where the NIM should normalize relative to the 2.6%, give us a sense -- I mean, you probably have this number, do we hit 3% at some point next year, give in terms of what the normalized it would be? And can we get to a 3%-plus NIM next year even it maybe four or five rate cuts that? Sure.

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : Got it. And just one quick one on credit quality. I think I heard Bill say not a whole lot ex-CRE office. But give us a sense if you're seeing any connects within the C&I customer base from the prolonged period of this higher for longer rates. How do you handicap the risk of a downturn or recession over the coming months or the next year? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 2:00PM, PNC.N - Q2 2024 PNC Financial Services Group Inc Earnings Call

Question: Ebrahim Poonawala - Bank of America Merrill Lynch - Analyst : Got it, and outlook for reserve is stable from 2Q?

Question: Bill Carcache - Wolfe Research - Analyst : Following up on your NIM and NII commentary, is there a point as we start to get cuts where you would start to worry that those rate cuts would potentially begin to negate some of the repricing benefit? And then separately, amid the debate over whether the curve's going to steepen or flatten depending on the outcome of the election, maybe could you just give us a little bit of a perspective on how PNC is positioned for either a flatter or a steeper yield curve environment?

Question: Bill Carcache - Wolfe Research - Analyst : Okay. That's helpful. And then on the asset quality side, slide 14 shows that steady upward trajectory in NPLs. But the reserve rate is relatively stable to down slightly as you mentioned. So it looks like the loss content that you see in the portfolio is stable. It's certainly not rising despite the rising NPLs. Maybe could you speak a little bit to that? And are there any implications of loan repricing that you are concerned about? For example, would you expect any impact on the credit performance of your customers as their loans begin to reset to higher rates? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JULY 16, 2024 / 2:00PM, PNC.N - Q2 2024 PNC Financial Services Group Inc Earnings Call

Question: Bill Carcache - Wolfe Research - Analyst : Understood. Bill, if I could squeeze in one last one for you. I wanted to get your thoughts on the FedNow Instant Payment Services which has been getting some attention. Is there a fee opportunity there? I guess, what level of engagement are you seeing from PNC customers? Do you see potential for lower cost instant digital payments disintermediating debit? It'd just be helpful to hear your thoughts on the overall risk versus potential benefits of that to PNC.

Question: Ken Usdin - Jefferies - Analyst : You guys gave us that great table last December with the repricing of fixed assets through 2025. And I'm just wondering, how much carry forward will there also be through '26? Should we think about that ratably? Obviously, it has been six months since you gave us that slide, but just wondering just how that rolls as we look further ahead.

Question: Ken Usdin - Jefferies - Analyst : Okay. Yeah. That's why I'm asking the building box question as opposed to NII question.

Question: Ken Usdin - Jefferies - Analyst : Okay. Understood. And then on the expenses, so you guys have been doing a great job holding the line. And I just wanted to ask like it looks like there's a pretty decent ramp baked into the second half on expenses. And I'm just wondering like what influences that? Because it seems like expenses will be growing faster than revenues in the second half, or certainly faster than fees. So can you just walk through, is that conservatism? Is there some catch-up on investments that you're making? Any context on that?

Question: Ken Usdin - Jefferies - Analyst : Okay. Got it. And then obviously, as that plays forward and if NII is better next year, you can also afford more cost growth, but we'll hear about that later.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Hi. Similar to some of the others, maybe this is like the game of Jeopardy. I think the answer is, you have continued improvement program with expense savings going from $425 million up to $450 million. You have securities repositioning that's giving you a boost to NII for the rest of this year, and you have fixed asset repricing that helps your securities yield go up by 400 basis points, your forward payment swaps go up by 180 basis points, and a little bit some other things. So the answer is, all those things are going in the right direction, yet you still have a guide for negative operating leverage for this year. I guess, what is the question? Or why is that? Or you can't eke it out or --

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And why should -- yeah, go ahead.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Okay. That's helpful. So -- yeah, so what's -- Bill, you were very adamant three quarters ago about loan growth. And look, if you get NII in your range even without getting loan growth, I think people would rather take that than not. But we're hearing all the -- the biggest capital market players are just gushing with their expectations that this is a big capital markets recovery, the world's back, everything else. H8 data actually showed a little bit better. I think you might have underperformed the H8 data this quarter on loan growth. So is it, A, that you're just being more prudent and conservative and you're not seeing the pricing that you want; or B, your mix is just a little bit differently; or C, maybe your team is not executing quite as well as you'd like them to do?

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And any meat on those bones about customer acquisition? You did mention 51% loan utilization. That seems a pretty low level versus 53% a year ago and 55% historical. So I guess, that would back up what you're saying, but how much are you growing loans? You expanded to so many MSAs and implemented teams and did all that stuff that helps sometimes and other times doesn't help as much.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : And just last follow-up on that because, Bill, you've been around for a while and Rob, the disconnect between what we're hearing and seeing in the capital markets and that activity picking up versus the still subdued loan growth as you say, CapEx and inventory are lower. It just seems CEO confidence is up, people ready to do all sorts of things, yet when the rubber meets the road with you guys, you're just not seeing it that much.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : No, I understand. Underpromise, never deliver, it's what you try to do. It's just -- in the past, you said at this stage of the cycle, and historically, you've seen loan growth come back. So it sounds like this cycle might be -- it might be a little bit different, it might not be.

Question: Mike Mayo - Wells Fargo Securities, LLC - Analyst : Got it. Okay.

Question: Matt O'Connor - Deutsche Bank Equity Research - Analyst : Bill, I haven't heard you guys talk too much about credit card. You mentioned a new product and some more coming, and just thoughts on the strategy for card going forward and the targeted customer and then any interest in acquiring portfolios, which has not really been in the radar in the past.

Question: Matt O'Connor - Deutsche Bank Equity Research - Analyst : Yeah, that makes sense. And then just separately, I think you still have half of your original Visa stake. And what's the plan on that? And I assume that's in the $750 million range mark to market for Visa, net of hedges and stuff like that. But just frame what's left and the timing of it?

Question: Matt O'Connor - Deutsche Bank Equity Research - Analyst : Just the remaining Visa and --

Question: Gerard Cassidy - RBC Capital Markets - Analyst : You guys have a good fortune of having insights into the commercial real estate business through Midland, your CNBS servicer. Can you give us some insights and color on what Midland is seeing in terms of their pipeline of increased special servicing, which of course I know has higher revenue, but more importantly, maybe directionally shows us where credit is heading?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Are they seeing any change in the product? Is it still primarily commercial office, or is it moving into any of the product areas?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Got it. Okay.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Got it. And then just on your commercial real estate, in slide 15, you give us obviously good detail and you've always told us about this multi-tenant office is the issue. It looks like obviously with 52% criticized, how far are you along in analyzing or reviewing that portfolio? Are you completely through it, and now it's going a second time? Or any color there?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Very good. And just one last one on this, Bill. Geographically, are you guys finding certain parts of the country weaker than others? I know there's a lot of talk about the big urban markets, Class B and C buildings. How about from your vantage point, what are you guys seeing geographically?

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Got it. Okay.

Question: Gerard Cassidy - RBC Capital Markets - Analyst : Yeah. Got it. Okay.