01—Abstract
Summary
Summary of the 10-Q filed May 2, 2024. Cited figures are marked; the original filing is the authoritative source.
PNC Financial Services Group reported first-quarter 2024 net income of $1.3 billiona, or $3.10 per diluted common share, down 21% from $1.7 billion ($3.98) a year earlier, but up 52% from the fourth quarter of 2023, which was depressed by $515 million of FDIC special assessment costs and $150 million of workforce reduction charges.
Total revenue fell 8% year over year to $5.1 billionb, driven by a 9% decline in net interest income to $3.3 billion as higher funding costs outpaced the benefit of higher asset yields. Net interest margin compressed 27 basis points to 2.57%. Noninterest expense was flat year over year at $3.3 billion, including a new $130 million FDIC charge, and the provision for credit losses fell to $155 million from $235 million.
Core noninterest expense is guided to be stable for full-year 2024. Credit quality was broadly stable, though nonperforming assets rose 9% quarter over quarter to $2.4 billionc, driven by commercial real estate, and net charge-offs were 0.30% of average loans. Office CRE remains the key area of stress: $7.8 billion of office loans carry 10.5% nonperforming loans and 26.4% criticized loans, and PNC has reserved 9.7% against office loans.
Total loans declined 1% to $319.8 billion, deposits rose to $425.6 billiond, and the CET1 ratio improved to 10.1%. Management guides to full-year 2024 net interest income down 4% to 5%, noninterest income up 4% to 6%, and revenue stable to down 2%, with two Fed rate cuts assumed in 2024. For investors, the key points are the sharp year-over-year earnings decline driven by funding-cost pressure and the continued elevated office CRE risk.
Offsetting positives include capital strength, the continued dividend of $1.55 per share, and ongoing share repurchases. The pending Visa Class B-1 exchange offer, if completed, would give PNC liquidity on roughly half of its Visa holdings in the second and third quarters of 2024.
02—Key points
Key Highlights
- Net income of $1.3 billion ($3.10 diluted EPS) fell 21% year over year, but rose 52% from the depressed fourth quarter of 2023, which included $515 million of FDIC special assessment and $150 million of workforce reduction charges.
- Net interest income declined 9% year over year to $3.3 billion and net interest margin fell 27 basis points to 2.57%, primarily due to higher funding costs; full-year 2024 NII is guided down 4% to 5%.
- Noninterest expense was flat year over year at $3.3 billion, including a new $130 million FDIC expected-loss charge; full-year 2024 core noninterest expense is guided to be stable.
- Credit quality was stable overall: provision for credit losses fell to $155 million, net charge-offs were 0.30% of average loans, and nonperforming assets rose 9% to $2.4 billion, driven by commercial real estate.
- Office CRE is the key risk: $7.8 billion of office loans show 10.5% nonperforming loans and 26.4% criticized loans, with a 9.7% reserve; multi-tenant office is the most stressed segment.
- Capital and liquidity remained strong: CET1 ratio rose to 10.1% from 9.9%, the LCR and NSFR exceeded minimums, and PNC returned $0.8 billion to shareholders in the quarter, with a $1.55 quarterly dividend declared for May 2024.
- Subsequent event: PNC tendered its Visa Class B-1 shares in Visa's exchange offer, which could allow liquidation of about 50% of its Visa holdings in the second and third quarters of 2024.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed May 2, 2024Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $5.14B$5.60B | −8.2% |
| Operating Income | $1.33B$1.68B | −20.7% |
| Interest Expense | $3.24B$2.07B | +56.0% |
| Net Income | $1.34B$1.69B | −20.7% |
| EPS (Basic) | $3.10$3.98 | −22.1% |
| EPS (Diluted) | $3.10$3.98 | −22.1% |
| Shares Outstanding (Basic) | 400.00M401.00M | −0.2% |
| Shares Outstanding (Diluted) | 400.00M402.00M | −0.5% |
05—Questions
Frequently Asked Questions
Why did PNC's earnings fall year over year despite a stable expense base?
Net income fell $350 million, or 21%, versus Q1 2023, mainly because net interest income dropped $321 million (9%) as higher deposit and borrowed-funds costs outpaced gains from higher asset yields. Noninterest income also fell 7%, mostly on lower private equity revenue and residential and commercial mortgage revenue. A lower provision for credit losses ($155 million versus $235 million) offset part of the decline.
How is PNC's credit quality trending, and where is the main risk?
Overall credit quality was stable in Q1 2024. Total loan delinquencies fell 8% to $1.3 billion, and the ACL to total loans was 1.68%. Nonperforming assets rose $199 million to $2.4 billion, mainly from commercial real estate. The main concern is the office portfolio, which has 26.4% criticized and 10.5% nonperforming loans, with multi-tenant office the most stressed. Management expects additional office stress as roughly 42% of office maturities come due over the next twelve months.
What is PNC's outlook for 2024?
For full-year 2024 versus 2023, management expects average loans up about 1%, net interest income down 4% to 5%, noninterest income up 4% to 6%, revenue stable to down 2%, core noninterest expense stable, and an effective tax rate of about 18.5%. For Q2 2024 versus Q1, it expects net interest income down about 1%, revenue stable, and net charge-offs of $225 million to $275 million. The outlook assumes two Federal Reserve rate cuts in 2024, starting in the third quarter.
Is PNC's capital position strong enough to support shareholder returns?
Yes. The CET1 ratio rose to 10.1% at March 31, 2024 from 9.9%, and the fully implemented CET1 ratio was an estimated 10.0%. PNC is well capitalized, and it returned $0.8 billion to shareholders in the quarter, including more than $0.6 billion of dividends and more than $0.1 billion of buybacks. The Board declared a $1.55 quarterly common dividend payable May 6, 2024. Management said Q2 2024 buybacks are expected to be near recent quarterly averages, pending evaluation of proposed Basel III changes.
What is the Visa Class B-1 exchange offer and why does it matter?
PNC holds Visa Class B-1 shares that are restricted and recorded at a cost basis that is insignificant, with an estimated value of about $1.6 billion based on the March 31 Visa Class A price. Visa launched an exchange offer on April 8, 2024, and PNC has tendered its shares to fully participate. If accepted, PNC could liquidate roughly 50% of its Visa holdings in the second and third quarters of 2024, subject to timing restrictions and an indemnity and make-whole agreement with Visa. The exchange could produce a meaningful, though uncertain, one-time gain.
06—Continue