01—Abstract
Summary
Summary of the 8-K filed January 16, 2024. Cited figures are marked; the original filing is the authoritative source.
PNC Financial Services Group's January 16, 2024 8-K furnishes slides from its Q4 and full-year 2023 earnings call (Exhibit 99.1).
The headline results were solid: full-year 2023 net income of $5.6 billiona, diluted EPS of $12.79, and adjusted diluted EPS of $14.10 excluding $665 million of pre-tax non-core expenses (a $515 million FDIC special assessment tied to the SVB and Signature Bank failures and $150 million of workforce reduction charges). Total 2023 revenue was a record $21.5 billion, up 2%, and adjusted operating leverage was positive at +41 basis points. Fourth-quarter net income fell to $883 million, reflecting the non-core charges, while Q4 diluted EPS was $1.85 and adjusted Q4 EPS was $3.16.
Balance sheet and credit metrics were stable to improving. The Basel III CET1 ratio rose to an estimated 9.9% from 9.8% in Q3 and 9.1% a year earlier, and tangible book value per share climbed to $85.08b. Average loans grew 2% linked-quarter, and AOCI improved to a negative $7.7 billion.
Net charge-offs were 0.24% of average loans, and deposits were roughly flat year over year at $423.9 billionc, with a shift toward commercial deposits and rising deposit costs. Management guided to a 2024 decline in net interest income of 4% to 5% and total revenue that is stable to down 2%, with core expenses held flat, and based its outlook on a mild recession starting mid-2024 with Fed cuts beginning mid-year.
For investors, the key tension is between a strong capital position and credit profile and a margin-pressured 2024 revenue outlook, with the Basel III Endgame proposal a potential swing factor for capital. The filing itself is a Regulation FD disclosure furnishing presentation slides rather than a new financial statement, so the figures are management presentation data and carry the forward-looking caveats noted in the deck.
02—Key points
Key Highlights
- FY2023 net income of $5.6 billion and diluted EPS of $12.79; adjusted diluted EPS of $14.10 excluding $665 million of pre-tax non-core charges (FDIC special assessment of $515 million and $150 million workforce reduction).
- Record FY2023 total revenue of $21.5 billion (+2%), with net interest income up 7% and noninterest income down 7%; adjusted operating leverage of +41 bps.
- Q4 2023 net income fell 44% linked-quarter to $883 million, driven by the non-core expense charges and a provision for credit losses of $232 million.
- Basel III CET1 ratio estimated at 9.9% at 12/31/23 (up from 9.1% a year earlier); tangible book value per share rose 18% year over year to $85.08.
- Credit quality remained strong with a Q4 net charge-off ratio of 0.24%; nonperforming loans were 0.68% of total loans, and the office CRE portfolio was $8.0 billion, or 2.5% of total loans.
- 2024 guidance calls for net interest income down 4%-5%, noninterest income up 4%-6%, total revenue stable to down 2%, and core noninterest expense stable, with an effective tax rate of about 18.5%.
- Deposit costs are rising and the mix is shifting toward commercial deposits; the cumulative deposit beta reached 45%, and management expects the first Fed rate cut in mid-2024.
03—Questions
Frequently Asked Questions
Why did PNC's adjusted EPS differ so much from reported EPS in Q4 2023?
Reported Q4 2023 diluted EPS of $1.85 included $665 million of pre-tax non-core noninterest expense, comprising a $515 million FDIC special assessment tied to the SVB and Signature Bank closures and $150 million of workforce reduction charges. Excluding these items, after tax at 21%, adjusted Q4 diluted EPS was $3.16. Management presents the adjusted figure as a non-GAAP measure to show underlying performance.
What is driving the expected decline in net interest income for 2024?
The deck expects full-year 2024 net interest income to fall 4%-5% from $13.9 billion, as the rate paid on interest-bearing deposits is expected to rise further before falling with Fed cuts. Deposit mix is shifting toward interest-bearing and commercial balances, and the company's cumulative deposit beta reached 45% at year-end 2023. Management assumes the federal funds rate stays at 5.25%-5.50% through mid-2024 and begins declining afterward.
How strong is PNC's capital position, and what could change it?
The estimated CET1 ratio was 9.9% at 12/31/23, or about 8.4% including AOCI, and roughly 8.2% on a fully phased-in Basel III Endgame basis, which exceeds the 7.0% requirement (4.5% minimum plus a 2.5% stress capital buffer). The main risk is the proposed Basel III Endgame rules, which could reduce capital ratios if finalized as proposed. The filing notes that final rules may differ materially from the proposal.
Is PNC's commercial real estate exposure a concern?
Office CRE is 2.5% of total loans, or $8.0 billion, and is the most stressed segment. Its reserves were 8.7% of loans, the NPL ratio was 8.4%, criticized loans were 24.8% of the portfolio, and annualized NCOs were 2.0%, all of which worsened from Q3. Total CRE is $35.4 billion, or 11% of loans, with multifamily the largest component at $15.6 billion. Management describes the office portfolio as conservatively underwritten, with a suburban-heavy geographic mix.
Is this 8-K reporting new financial results or a new transaction?
No. Item 7.01 is a Regulation FD disclosure that furnishes the slides used on the January 16, 2024 earnings call; the full earnings results were released separately. The filing does not disclose a new acquisition, financing, or other material transaction. Investors should treat the presentation as management commentary and rely on the 10-K and earnings release for audited financial statements.
04—Continue