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F500-2021-120-PNC Financial Services Group

Boasting nearly $470 billion in assets, the financial services group provides banking and wealth management to a diverse array of individuals and businesses. PNC received regulatory approval to acquire BBVA USA, which is expected to close in June 2021. Upon closing, the company will have a presence in 29 of the 30 largest markets in the U.S.

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F500-2020-151-PNC-Financial

The Pittsburgh-based diversified financial services company has retail and commercial banking, mortgage, lending, and wealth management businesses, and operates a retail bank branch network across the Mid-Atlantic, Midwest, and Southeast. In May, PNC made headlines by selling its roughly $17 billion stake in financial giant BlackRock.

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PNC Financial Services, which operates in the U.S., traces its origins as far back as 1852. Its retail banking segment provides consumers and small businesses with checking and savings accounts, residential mortgages, credit cards, and other services. PNC’s corporate and institutional banking segment serves midsize and large companies, as well as nonprofits and government entities. Its third segment, the asset management group, provides high- and ultrahigh-net-worth customers with investment management and other services.

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PNC Financial Services Group (PNC): Company Profile, Stock Price, News, Rankings

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PNC Financial Services Group

pnc financial services group

Greetings. Welcome to the PNC Financial Services Group Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow today's formal presentation. Please note that today's conference is being recorded.

At this time, it is now my pleasure to turn the conference over to Brian Executive Vice President and Director of Investor Relations. Mr. Gill, you may now begin.

Well, good morning. Welcome to today's conference call for the PNC Financial Services Group. I am Brian Gill, the Director of Investor Relations for PNC. And participating on this call are PNC's Chairman and CEO, Bill Demchak and Rob Riley, Executive Vice President and CFO. Today's presentation contains forward looking information.

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. These statements speak only as of 07/16/2025, and PNC undertakes no obligation to update them. Now I'd like to turn the call over to Bill.

Thank you, Brian, and good morning, everyone. As you've seen, we had a very strong second quarter fueled by our continued focus on driving growth. We accelerated new customer acquisition while deepening relationships with existing customers across our businesses. Loan growth increased even through an uncertain macro environment and we delivered on what we said we would. Our approach to growing our businesses remains consistent.

The disciplined way we go to market bringing the best of P and C's people, products and services to customers across our expanded franchise has continued to produce results. We reported net income of $1,600,000,000 or $3.85 per diluted share. During the quarter loans grew 2% reflecting strong commercial loan growth fueled by the highest level production in 10 quarters. At the same time, we increased revenue 4% while holding non interest expenses stable, which resulted in another quarter of positive operating leverage and 10% PPNR growth. By now you've seen our stress test results.

We maintained our regulatory minimum stress capital buffer of 2.5% and our start to trough capital depletion of 80 basis points was the lowest in our peer group. And as announced on July 3, our board increased our common dividend by $0.10 or 6% earlier this month. Rob is going to go through our performance in more detail, but first I'd like to share some of our business highlights from the quarter. As I mentioned we continue to see strong results from the execution of our national growth strategy. In C and IB we saw strong growth in loans and commitments and our credit trends continue to be very good.

Looking at fees, our capital markets and advisory trends remain solid and as expected treasury management continues to produce strong results. In retail banking we are accelerating customer growth. Our consumer checking accounts grew by 2% year over year including 6% growth in the Southwest. We also saw record debit and credit card activity this quarter and we remain on track with our $1,500,000,000 branch investment which we plan to open more than 200 branches in our expansion markets. Within our asset management business we had positive net flows and new client acquisition increased 16% linked quarter.

Inside of that growth in our expansion markets accelerated as discretionary assets under management grew nearly three times that of legacy markets albeit off a small base. In closing, we continue to demonstrate the strength of our national franchise and deliver on our objectives. We are poised to further capitalize on our growth potential and I remain very optimistic about our future. And finally, I just want to take a minute to thank our talented employees for their efforts, which are vital to all of our success and growth. With that, Rob will take you through the quarter. Rob?

Thanks, Bill, and good morning, everyone. Our balance sheet is on Slide four and is presented on an average basis. For the linked quarter, loans of $323,000,000,000 increased $6,000,000,000 or 2%. Investment securities of $142,000,000,000 were stable. And our cash balance at the Federal Reserve was $31,000,000,000 a decrease of $3,000,000,000 Deposit balances increased $2,000,000,000 and averaged $423,000,000,000 and our borrowings remained stable at $65,000,000,000 At quarter end, AOCI was negative $4,700,000,000 an improvement of $555,000,000 or 11% compared with March 31.

Our tangible book value increased to approximately $104 per common share, which was a 4% increase linked quarter and a 17% increase compared to the same period a year ago. We remain well capitalized with an estimated CET1 ratio of 10.5% and an estimated CET1 ratio inclusive of AOCI to be 9.4% at quarter end. We continue to be well positioned with capital flexibility. During the quarter, we returned approximately $1,000,000,000 of capital to shareholders, which included $640,000,000 in common dividends and $335,000,000 of share repurchases. As Bill just mentioned, our Board recently approved a $0.10 increase to our quarterly cash dividend on common stock, raising the dividend to $1.7 per share.

And we expect repurchases in the third quarter to be between 300,000,000 and $400,000,000 Our recent CCAR results underscore the strength of our balance sheet. And as previously announced, our current stress capital buffer remains at the regulatory minimum of 2.5%. Slide five shows our loans in more detail. During the second quarter, we delivered solid loan growth. Loan balances averaged $323,000,000,000 an increase of $6,000,000,000 or 2% compared to the first quarter.

The growth was driven by C and I, which increased $7,000,000,000 or 4%, reflecting strong new production and higher utilization. Commercial real estate loans declined $1,000,000,000 or 4% as we continue to reduce certain exposures. And during the second quarter, our CRE office balances declined $500,000,000 Consumer loans were stable as growth in auto balances was offset by a decline in residential real estate loans. And our total loan yield of 5.7% was stable with the first quarter. Slide six details our investment securities and swap portfolios.

Average investment securities remained stable at $142,000,000,000 During the second quarter, our securities yield was 3.26%, an increase of nine basis basis points. And as of June 30, our duration was estimated to be three point four years. Our period end securities balances increased $5,000,000,000 or 3%, reflecting purchases, the majority of which were residential mortgage backed securities with an average yield of 5.4%. Regarding our swaps, active received fixed rate swaps totaled $40,000,000,000 on June 30, with a receive rate of 3.62%, which increased 13 basis points linked quarter. Forward starting swaps were $16,000,000,000 with a receive rate of 4.07%, and approximately 40% of these swaps will become active in 2025.

Slide seven covers our deposit balances in more detail. Average deposits increased $2,000,000,000 driven by growth in CDs, both brokered and direct, with the balance of consumer and commercial deposits remaining stable during the quarter. Non interest bearing balances increased $1,000,000,000 and remained at 22% of total deposits. And our rate paid on interest bearing deposits stayed essentially flat at 2.24%, up just one basis point. Turning to Slide eight, we highlight our income statement trends.

Comparing the second quarter to the first quarter, total revenue was up $2.00 $9,000,000 or 4% and noninterest expense was stable, which allowed us to deliver 4% positive operating leverage and 10% growth in PPNR. Provision was $254,000,000 reflecting the impact of changes in macroeconomic scenarios, tariff considerations and portfolio activity, including loan growth. Our effective tax rate was 18.8% and second quarter net income was $1,600,000,000 or $3.85 per share. In the first half of the year compared to the same time last year, we've demonstrated strong momentum across our franchise. Total revenue increased $557,000,000 or 5%, driven by higher net interest income and fee income growth.

Non interest expense increased $79,000,000 or 1%, reflecting increased business activity, technology investments and higher marketing spend. And net income grew $321,000,000 resulting in EPS growth of 14%. Turning to Slide nine, we detail our revenue trends. Second quarter revenue of 5,700,000,000 increased $2.00 $9,000,000 or 4% linked quarter. Net interest income of $3,600,000,000 increased $79,000,000 or 2%.

The growth was driven by higher loan balances, the continued benefit of fixed rate asset repricing and one additional day in the quarter. And our net interest margin was 2.8%, an increase of two basis points. Non interest income increased $130,000,000 or 7%. Inside of that, fee income increased $55,000,000 or 3% linked quarter to $1,900,000,000 Looking at the details, Capital Markets and Advisory revenue increased $15,000,000 reflecting broad based increase in capital markets activity, much of which occurred late in the quarter. Card and cash management revenue grew $45,000,000 or 7%, driven by seasonally higher consumer spending and growth in treasury management.

Mortgage revenue decreased $6,000,000 or 4%, primarily due to lower residential mortgage servicing activity. And other non interest income of $212,000,000 increased $75,000,000 primarily reflecting Visa related activity and other valuation adjustments. Turning to Slide 10. Our expenses remained well controlled and were stable linked quarter. Seasonally higher marketing spend and continued technology investments were more than offset by our disciplined expense management.

And as we previously stated, we have a goal to reduce costs by $350,000,000 in 2025 through our continuous improvement program. As you know, this program funds a significant portion of our ongoing business and technology investments, and we're on track to achieve our full year target. Our credit metrics are presented on Slide 11. Overall, credit quality remains strong with improvements in nonperforming loans, delinquencies and charge offs. Non performing loans of $2,100,000,000 were down $184,000,000 or 8%, driven by declines in both C and I and commercial real estate non performing loans.

Total delinquencies of $1,300,000,000 declined 128,000,000 or 9% compared with March 31, reflecting both lower consumer and commercial delinquencies. Net loan charge offs were $198,000,000 down $7,000,000 and represent a net charge off ratio of 25 basis points. And our allowance for credit losses totaled $5,300,000,000 or 1.62% of total loans at the end of the second quarter, which included tariff considerations. In summary, P and C reported a solid second quarter, and we're well positioned for the second half of twenty twenty five. Regarding our view of the overall economy, we're expecting continued economic growth in the second half of the year, resulting in real GDP growth of approximately 1.5% in 2025 and unemployment to increase to around 4.5% over the next twelve months.

We expect the Fed to cut rates once in 2025 with a 25 basis point decrease in December. Considering our reported first half operating results, third quarter expectations and current economic forecasts, our full year 2025 guidance is as follows: For the full year 2025 compared to the full year 2024, we expect average loans to be up approximately 1% versus our prior guidance of stable. We expect full year net interest income to increase approximately 7%, up from our previous guidance of up 6% to 7%. We now expect noninterest income to be up approximately 4% to 5%, down slightly from our previous guidance of up 5%, primarily reflecting the continued level of heightened economic uncertainty. Taking the component pieces of revenue together, we continue to expect total revenue to be up approximately 6%.

We continue to expect non interest expenses to be up approximately 1%. And we expect our effective tax rate to be approximately 19%. For the third quarter of twenty twenty five compared to the second quarter of twenty twenty five, we expect average loans to be up approximately 1%, net interest income to be approximately up 3%, fee income to be up between 34%, other non interest income to be in the range of $150,000,000 Taking the component pieces of revenue together, we expect total revenue to be up between 23%. We expect non interest expense to be up approximately 2%, and we expect third quarter net charge offs to be in the range of $275,000,000 to $300,000,000 And with that, Bill and I are ready to take your questions.

Thank you. We'll now be conducting a question and answer session. Thank you. You. And our first question today will be coming from the line of David George with Baird. Please proceed with your questions.

Hey guys, good morning. Question on the pickup you had in loan growth in the quarter. A lot of it looks like it's coming from commercial. There's a pickup in line of credit utilization, but would like to get some color or context around that growth and how sustainable you think it might be? And then I've got a quick follow-up as well.

Yes, sure. Good morning, David. It's Rob. Yes, so loan growth was strong in the second quarter and it really was the combination of an uptick in utilization in part due to obviously some tariff related considerations. But importantly for us, on top of that was also new production in large part from our growth markets, which is simply the fruition of years of working toward that.

So it really was a combination that drove those higher levels. When we look to the balance of the year, the balance of 2025, we don't have quite the same loan growth repeating. We do have some more loan growth than what we thought. So we raised, as you saw in our full year guidance, average loans from stable to up 1%.

Okay. To that end, it's staying on NII between the pickup in loan growth, Rob and you added as you mentioned added to the securities portfolio towards the end of the quarter and your inherent positioning with asset repricing and swaps coming off, presumably, you continue to be in a pretty favorable NII position going into the back half and into next year. Just want to get a sense as to how you're thinking about the trajectory of NII in the back half and into '26?

Yes, sure. So because of the items that you mentioned, we did up our guidance for the full year from up six percent to 7% to up 7% for NII. And the momentum will continue into 2026. We won't get into specific guidance, but we expect a similar and sustained trajectory.

The next question is from the line of Chris McGratty with KBW. Please proceed with your questions.

Great. Good morning. Thank you. Bill, kind of a big picture question for you. It feels like we're in a really important spot for the industry given what's happening in Washington in the political environment and the deregulatory environment.

I'm interested to hear your updated views of how this may play out for PNC. You've talked about the benefits, but also the frustration with scale over the years and also balancing with what is seemingly a little bit better organic growth outlook. Thank you.

Look, ignoring what's happening in D. C, we're on a good path. New markets and new clients are giving us an organic growth opportunity that we haven't seen in years. At the margin, you know, Washington comes in and out and regulations get easier and harder and we succeed in all of those environments. So we're in an environment today where the where regulation gives us a bit of a tailwind, which is a good thing.

And, you know, you'll see that Yeah. Not just in some of the, like, you know, capital ratios and adjustments and Basel three endgame and so on and so forth. But also, I think through time and the amount of money we actually spend on, you know, what I'm just gonna call busy work. Oh, Rachel. Yeah.

Responding to regulatory things that that don't necessarily have a lot to do with core risk in the bank. But, you know, all of that, you know, helps at the margin against the backdrop of a company that's actually, growing clients and growing business at a pretty healthy clip. We feel pretty good about where we are.

Thank you. The next question is from the line of John Pancari with Evercore ISI. Please proceed with your question.

Just wanted to get some additional color on your fee income outlook for the full year. Your fee trends came in pretty solidly in the second quarter. You cited the upside to capital markets and a little bit of upside in other, but you had nudged your fee guidance lower. It looks like the Street was already there, but you noted that lower just under the economic uncertainty. If you could maybe just elaborate what's keeping you from getting a little bit more confident there?

I know you said that you're seeing record pipelines in your capital markets business. So maybe can you just talk about the puts and takes there and the rationale in nudging that lower?

Yes. Sure, John. So if we go back to our January expectations relative to total non interest income growth, we set up 5%. We've got a small revision to that downward. So we're now saying 4% to 5%.

So that's a 1% decline on an 8,400,000,000.0 plus number, so pretty small. And we chalk that up to sort of the heightened uncertainty that emerged after January that we're all well aware of. And we've seen some soft spots in the first quarter with corporate spending activity, mortgages are touched less. And then as we discussed in a recent conference, private equity valuations, which is in other non interest income, have some headwinds relative to our expectations in January, but it's pretty small. And to your point, the major categories asset management is ahead of where we expected in January, capital markets is right on what we expected in January.

So we think it's these are pretty good and they're obviously pretty resilient given everything that we've been through with the turbulence.

Got it. Okay. Thanks for that. And then just separately, we're hearing some of the banks citing somewhat higher or intensifying competitive pressure around loan pricing. A couple of banks are citing tighter spreads that's impacting some of their fixed asset loan pricing benefit.

Can you maybe talk about what you're seeing out there in terms of loan pricing, particularly as loan growth is accelerating? And I know your loan yields were flat this quarter. Is competition at all impacting that? Or is that really just the swap dynamics?

No, I think when you look at our spreads, our spreads are pretty consistent. So there's always competition. There's certainly no spread expansion, but we haven't seen a lot of contraction. If anything, we might have a little bit spread pressure just because our asset mix, our loan mix tends recently to be sort of in the higher credit quality, but nothing that's thrown us off our yields. But when rates are fairly steady, spreads are fairly steady, the yields are pretty steady. Competition seems pretty rational. So, not much change.

Next question is from the line of Scott Siefers with Piper Sandler. Please proceed with your question.

Good morning, Thanks for taking the question. Let's see, Rob, wanted to ask a little on the margin dynamics, excuse me. I think in the past you all have talked about the margin potentially expanding up toward like $2.90 by the end of the year. That's something you're still sort of pointing towards or hoping to achieve. I guess as I think of things, the asset repricing story is pretty it's pretty much become self evident at this point.

It's terrific. I would imagine deposit benefits just get tougher if the Fed isn't cutting as aggressively. I think you said you only have the one rate cut in December in your model. So maybe how you're thinking about that trajectory would be great, please?

Sure. I think you summed it up well that nothing's changed. We're still tracking to that $2.90 range by the end of the year that I said on the first quarter earnings call.

Okay, perfect. Thank you. And then, I guess a small one. Any rationale behind the thought that third quarter charge offs would increase? I guess, it feels like there's been a couple quarters in a row where the expectation has turned out to be worse than the reality, which is a good thing.

But just curious if there's anything behind the thinking there?

Yes, lower charge offs are definitely a better thing, Scott. Yes, charge offs have come in favorably year to date relative to our expectations. We did lower our guide, meaning improved. We've been running at estimating $300,000,000 a quarter. We've been doing closer to 200 So we lowered our guide to $275,000,000 to 300,000,000 because there is still this sort of pipeline of charge offs related to commercial real estate office that we know is going to pull through, all fully reserved.

So not an economic impact, but at some point they will flow through. And we expect that to occur over the next several quarters.

But other than that, quality is very good.

Yes. No, it seems that way. So but appreciate the color. Thanks a lot, Rob.

The next question comes from the line of Ebrahim Poonawala with Bank of America. Please proceed with your questions.

I guess sorry if I missed this, Rob. Just talk to us how you're thinking about capital levels. I mean, we have a bunch of like regulatory changes sort of on the come.

But as we think about the right target CET1 capital for P and C in a world where banks triple your size are seeing requirements coming lower. How do you think about it? Like I was going back, there have been times when you operated with the 9.5% CET1. Just what the thought process is, even if you're not willing to sort of commit to a certain target today, would love to hear how you think about your capital relative to larger peers just as we think about just the relative competitive advantage versus disadvantage? Thanks.

Sure. Yes. Well, so hi, Ebrahim, it's Rob. So yes, so you saw we print CET1 to 10.5% with AOCI included 9.4 in our recent stress tests that require 7%. So we're in a healthy excess capital position.

The short answer is, we think at the levels that we are right now with the rules still yet to be finalized, feels about right. We did up our share repurchases as a result in the second quarter and said that we're going to sustain that 300,000,000 to $400,000,000 of repurchases into the third quarter. Obviously, the highest and best use of our capital is for loans. We're pointing to and hopeful that we'll be able to use that capital towards that loan growth. But generally speaking, in terms of our capital levels, we feel like we're in the right place right now.

We've got some flexibility. We've upped the share repurchases. We increased the dividend. So I think we're in a good spot.

The only thing I'd add, you might have seen a comment letter that BPI put out about one of the rating which is the Yep. Binding constraint for the industry right now. And so we're all, you know, even in today's environment, higher than we need to be vis a vis regulatory rules. But we're not necessarily there vis a vis rating agency rules. So there's some pushback on that.

And that applies to all of us, not just, you know, our size or smaller or the giant banks. It's one of the things we're all dealing with and we need to work our way through.

We've heard that. So thanks for mentioning that. And I guess just one follow-up, like on loan growth and capital markets, is momentum picking up as we think about just conversations with clients and all of these? I'm just trying to get a sense of is there upside to growth outlook for the back half into 2026? Should we be excited about that?

Or is it still early days yet? We're still watching tariffs closely. And like where do you kind of shake out between those two views?

The one thing I will say on loan growth, because we've been terrible predicting As an industry.

As an industry and and well, which is still yeah. We don't Which we're apart. We don't put a prediction out there. But as I've said before, if there is loan growth in the industry, we will participate in it and likely do better just given our efforts in the newer markets. The momentum is really good at the moment.

But as we've seen, that can be disrupted pretty easily by the political environment and tariffs.

Thank you. The next question comes from the line of Steven Alexopoulos with TD Cowen. Please proceed with your questions.

Hey, good morning everyone. I want to start maybe following up on what you just said in response to Ebrahim's question. So the commercial loan growth is coming from the newer markets, the higher growth MSAs. Is this really a function of new bankers and share gains? Are you guys seeing broad based improved optimism across those faster growing MSAs?

Got it. Okay. So more specific to P and C. Okay. And Bill, this is my first time on your call.

And I wanted to take a minute and revisit the scale argument. We just had the big four banks report. When I look at your results compared to them, you guys are very efficient, right? You look at the retail bank, really solid, good organic growth, growing checking accounts, but you don't have the complexity of $1,000,000,000,000 plus bank. To me, you seem to be in the sweet spot, but I know you've talked quite a bit about needing more scale.

What's the benefit to doing a larger deal moving much above your current size because you seem to be in a great spot right now?

We didn't hear us talk about doing a large deal. You just said bigger is better and left to our own devices and organic growth, we will get there. But the argument for scale largely is around the very visible concentration consolidation of retail share in The US. And to succeed long term as you watch the the very big banks grow, We need to be in all markets and have really good products and low cost to serve those clients because that feeds the rest of our engine, right? I am a 100% convinced we can grow our c and I franchise organically. There's a race on retail deposits and that's why we have this big focus on the investment in building branches and, you know, we're refurbishing.

I don't remember the number, Rob. But the majority of our old branches Okay. We're rolling out. We're probably halfway through now the rollout of a new online banking. We're gonna put out new mobile, you know, with JetTech AI and client service, all of the things you need to do to win in this space.

You know, with that comes the ability to spread marketing dollars, the ability to spread spread technology dollars, you know, and and and everything else that is kinda self evident and scale itself. And particularly, the technology dollars which are increasing. Yeah.

Our next question is from the line of Betsy Graseck with Morgan Stanley. Please proceed with your questions.

4% positive operating leverage, very impressive. And I just wanted to get and I know you've always got continuous improvement every year Washer and Trepedo helping drive that bus. How does AI impact the degree to which you can get even more efficient from here? Is it just starting and we have to wait five years? Or is it heavily embedded already in the results and it's here today or some other answer? Just wondering. Thank you.

That's actually a really good way to state the question. So I can give you a million ways we're using AI and thinking about AI. But the more interesting question is how is it gonna make how is it gonna help you make more money or save costs? And, you know, in the what's in use today that is saving us a lot of money, you know, principally in, you know, fraud related areas. So you see, you know, charges go way down.

In document sort that helps our employees get answers faster in data lake creation and burst through capacity to clouds that help us deliver more accurate models faster. And then the the basic, you know, how do you save money through time, Betsy, is this continuation of automation that we've had largely in our back office for the last ten years. You know, this may accelerate it, but continuous improvement for years has been figuring out how to do the same workload with less. And AI, you know, is gonna be a big part of that. And it's we're looking at it in in everything we do.

No. I just don't think there's going to be this gigantic change in the cost base. I think you're just going to see at least in our instance our ability to keep expenses on the low end as it relates to people even as we invest in the technology. It will be the same trend. Go through our line go through our employee cost line versus our tech line for the last ten years. And I just think it continues and AI is the next leg of that in effect.

More interesting longer term is is away from, you know, the the cool stuff we all talk about in AI, you know, the the the you could be faster, you can solve models for all that stuff, is the how might it change the overall delivery of financial services. And that occupies a lot of our time. So so, you know, we keep talking about the tools. We don't actually talk about the clients and how you end up delivering financial services in a world where, you know, advice can be computer generated, you know, in in in mobile and that that's that's where we're spending all our time.

Got it. Thanks so much. Appreciate it though.

Our next questions are from the line of Matt O'Connor with Deutsche Bank. Please proceed with your questions.

Good morning. I just wanted to get any thoughts you have on deposit pricing and how you're thinking about growth. Slide seven shows just a very modest tick up in the rate paid, I think, as you grew the brokered. And just thoughts going forward, you've got plenty of deposits to grow loans given that loan to deposit ratio is so low, but my guess is you want to grow deposits still?

Yes. Hey, Matt. It's Rob. So yes, you're right on it. Rate paid in the quarter was pretty stable, up just one basis point over the first quarter.

PNC Financial Services Group (PNC) Q2 2025 Earnings Call Transcript

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