PNC Financial Services Group Inc Q4 2024 Earnings Call Summary

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

Question: John McDonald - Truist Securities Inc. - Analyst : I wanted to start off with a take on industry deposit growth and trends in '25. 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 3:00PM, PNC.N - Q4 2024 PNC Financial Services Group Inc Earnings Call

Question: John McDonald - Truist Securities Inc. - Analyst : Okay. 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 to that 6%, 7% for the year?

Question: John McDonald - Truist Securities Inc. - Analyst : Okay. And does the fixed asset reprice kind of pick up as you go through the year or is there any kind of weighting to that throughout the year?

Question: Scott Siefers - Piper Sandler & Co. - Analyst : Let's see. Rob, so you've emphasized a couple of times not a lot of loan growth baked into the guide, which I appreciate. Just curious now that the dust has kind of settled on the election, maybe just updated thoughts on how you might see demand developing. It's pretty clear that's not going to be a requisite to hit your numbers. But 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 3:00PM, PNC.N - Q4 2024 PNC Financial Services Group Inc Earnings Call

Question: Scott Siefers - Piper Sandler & Co. - Analyst : Got you, perfect. All right. 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 ramp in NII seems kind of 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 -- it's just going to take a little bit longer than that to develop?

Question: Erika Najarian - UBS Securities LLC - Analyst : Rob, just to clarify, just as you can imagine, this is a big conversation that was happening with your investors this morning. 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. And in terms of the two cuts that you 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 income?

Question: Erika Najarian - UBS Securities LLC - Analyst : Great. And my follow-up question here is 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 and maybe some flatness, 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 seek out to finance their projects through lines of credit versus going to the capital markets? And how much of that dynamic is embedded into your more conservative guide? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 3:00PM, PNC.N - Q4 2024 PNC Financial Services Group Inc Earnings Call

Question: John Pancari - Evercore ISI Institutional Equities - Analyst : Just on the fee income side, I want to see if you can unpack the 5% growth outlook a bit for 2025, maybe just look 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 could just help us and think about what are the largest drivers of that 5% outlook.

Question: John Pancari - Evercore ISI Institutional Equities - Analyst : Got it, Rob. That's helpful. And then separately on capital on the buyback front, I mean, you're at the 10.5% CET1 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?

Question: Michael Mayo - Wells Fargo Securities, LLC - Analyst : Bill, I guess I've been asking this question for the last three or four calls so I break the streak. Loan growth, so you're giving your NII guide assuming not much loan growth, just average, 0. And I know you're getting out of the forecasting business and so you just say it's basically 0 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 markets or are the corporations just sluggish or what's going on?

Question: Michael Mayo - Wells Fargo Securities, LLC - Analyst : Got it. And then just as a follow-up, Bill, you've never been shy whether you've testified to Congress or with your views on 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 different industry groups, what would you hope to see changed as it relates to the regulation at PNC?

Question: Betsy Graseck - Morgan Stanley - Analyst : So first question, just one more on the loan growth. I wonder how much of the C&I weakness is a function of pay downs, right? Because 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?

Question: Betsy Graseck - Morgan Stanley - Analyst : All right, okay. So really, originations are really low, okay --

Question: Betsy Graseck - Morgan Stanley - Analyst : Okay. So separate question just on liquidity. I think, Rob, you mentioned 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?

Question: Gerard Cassidy - RBC Capital Markets Wealth Management - Analyst : Can you 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, you've gained a lot of attention in 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. Do you bump into them much out -- and 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 tend to swim in that ocean?

Question: Gerard Cassidy - RBC Capital Markets Wealth Management - Analyst : And you guys have been very strong in the asset-backed 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?

Question: Gerard Cassidy - RBC Capital Markets Wealth Management - Analyst : 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. Are there -- where do you head first? Is it in 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?

Question: Gerard Cassidy - RBC Capital Markets Wealth Management - Analyst : Got it. So nothing here in Portland, Maine and -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 3:00PM, PNC.N - Q4 2024 PNC Financial Services Group Inc Earnings Call

Question: Bill Carcache - Wolfe Research, LLC - Analyst : 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? I was hoping you could maybe just speak to how that complements your existing physical and digital channels.

Question: Bill Carcache - Wolfe Research, LLC - Analyst : 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?

Question: Bill Carcache - Wolfe Research, LLC - Analyst : That's helpful. 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?

Question: Matthew O'Connor - Deutsche Bank - Analyst : Can you guys remind us, do you have any targeted capital level either on a stated CET1 or adjusted for AOCI? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JANUARY 16, 2025 / 3:00PM, PNC.N - Q4 2024 PNC Financial Services Group Inc Earnings Call

Question: Matthew O'Connor - Deutsche Bank - Analyst : Okay. Yes. 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 disclosure on the securities book. The duration didn't really extend. So it feels like with sluggish loan growth and your buyback assumptions that the capital ratios will continue to build off already high levels.

Question: Matthew O'Connor - Deutsche Bank - Analyst : And then separately on the expenses, I mean, obviously, the operating leverage is strong but the kind of 1% growth includes some of the lumpiest in the base. And I guess the punchline is on a quarter basis, the expenses are going up 3%. And obviously, you're leaning into 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?

Question: Ebrahim Poonawala - BofA Global Research (US) - Analyst : I guess maybe, Bill, remind us of your thoughts around -- we talked about regulations earlier. Absent a 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. 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. Like what are the odds where those opportunities come up and you actually tap into that? Understanding you'll be disciplined, you know the math. So I appreciate all of that.

Question: Ebrahim Poonawala - BofA Global Research (US) - Analyst : Got it, all right. So your response is like short term is an overtake shareholder value creation in terms of --

Question: Ebrahim Poonawala - BofA Global Research (US) - Analyst : Fair point, I agree. And I guess maybe just a quick 1, 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?