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    PNC
    Earnings call· Mar 2025(Q1 FY25)

    PNC FINANCIAL SERVICES GROUP, INC. PNC

    Apr 15, 2025 Source

    Executive summary

    The PNC Financial Services Group, Inc. Q1 FY25 — Strong Performance with Positive Operating Leverage and Record NII Outlook

    The PNC Financial Services Group delivered a strong first quarter, marked by solid earnings and balance sheet growth despite increased market volatility and tariff uncertainty. The company achieved positive operating leverage and remains on track for record net interest income for the full year, supported by disciplined expense management and expanding net interest margin. Management is actively monitoring the evolving economic landscape while continuing to focus on organic growth and capital returns.

    Highlights

    5

    • Net income of $1.5 billion or $3.51 per share.

    • Spot C&I loans grew 3% to $181 billion.

    • Net interest margin expanded 3 basis points to 2.78%.

    • Tangible book value increased 5% linked quarter to $100.40 per common share.

    • Estimated CET1 ratio of 10.6% as of March 31.

    Concerns

    5

    • Increased market volatility due to tariff uncertainty, raising recession concerns.

    • Total revenue decreased $115 million or 2% linked quarter due to seasonality.

    • Noninterest income could be pressured throughout the balance of the year due to tariffs.

    • Capital Markets and advisory fees decreased $42 million or 12% linked quarter.

    • Other noninterest income included $40 million of negative Visa derivative adjustments.

    Guidance & targets

    15
    CategoryTargetConfidence
    Full-year Net Interest Income
    record NII
    high materiality
    High
    Full-year Average Loans
    stable (equates to spot loan growth of 2% to 3%)
    high materiality
    High
    Full-year Net Interest Income Growth
    up 6% to 7%
    high materiality
    High
    Full-year Noninterest Income Growth
    up approximately 5%
    high materiality
    Medium
    Full-year Total Revenue Growth
    up approximately 6%
    high materiality
    Medium
    Full-year Noninterest Expenses Growth
    up approximately 1%
    high materiality
    High
    Full-year Effective Tax Rate
    approximately 19%
    medium materiality
    High
    Q2 FY25 Average Loans Growth
    up approximately 1%
    medium materiality
    High
    Q2 FY25 Net Interest Income Growth
    up 1% to 2%
    medium materiality
    High
    Q2 FY25 Fee Income Growth
    up 1% to 3%
    medium materiality
    High
    Q2 FY25 Other Noninterest Income
    $150 million and $200 million
    medium materiality
    High
    Q2 FY25 Total Revenue Growth
    up 1% to 3%
    medium materiality
    High
    Q2 FY25 Noninterest Expense Growth
    stable
    medium materiality
    High
    Q2 FY25 Net Charge-offs
    approximately $300 million
    medium materiality
    High
    Q4 FY25 Net Interest Margin
    approach 3% (2.90% range)
    high materiality
    Medium

    Operational metrics

    29
    Tangible book value per share
    $100.405% increase linked quarter and a 17% increase compared to the same period a year ago
    Q1 FY25

    Our tangible book value increased to $100.40 per common share, which was a 5% increase linked quarter and a 17% increase compared to the same period a year ago.

    Estimated CET1 ratio inclusive of AOCI
    9.4%
    Q1 FY25

    We estimate our CET1 ratio inclusive of AOCI to be 9.4% at quarter end.

    Capital returned to shareholders
    $800 million
    Q1 FY25

    And during the first quarter, we returned approximately $800 million of capital to shareholders through both common dividends and share repurchases.

    C&I loans
    $181 billionincrease of $5 billion or 3%
    Q1 FY25

    C&I loans were $181 billion on March 31, an increase of $5 billion or 3%, reflecting broad growth across loan categories.

    C&I loan utilization rate
    50.3%80 basis points higher than year-end
    Q1 FY25

    Regarding utilization, we saw positive trends in the first quarter with increases in each consecutive month and ending the quarter at 50.3% or 80 basis points higher than year-end.

    Investment securities yield
    3.17%stable
    Q1 FY25

    During the first quarter, our securities yield was stable at 3.17%.

    Investment securities floating rate portion
    20%
    Q1 FY25

    And as of March 31, approximately 20% of the portfolio was floating rate

    Investment securities duration
    3.4 years
    Q1 FY25

    and our duration was estimated to be 3.4 years.

    Active received fixed rate swaps
    $39 billion
    Q1 FY25

    Our active received fixed rate swaps totaled $39 billion on March 31

    Weighted average receive rate on active swaps
    3.49%increased 27 basis points linked quarter to 3.49% and up from 2.2% this time last year
    Q1 FY25

    and the weighted average receive rate increased 27 basis points linked quarter to 3.49% and up from 2.2% this time last year.

    Forward starting swaps
    $20 billion
    Q1 FY25

    Our forward starting swaps now total $20 billion, including $9 billion that were added during the first quarter, which will roll on through 2026.

    Brokered CDs
    $5 billiondeclined $3 billion
    Q1 FY25

    Lastly, we have a small amount of brokered CDs totaling $5 billion, which declined $3 billion as part of our funding plan.

    Rate paid on interest-bearing deposits
    2.23%declined 20 basis points during the first quarter
    Q1 FY25

    Our rate paid on interest-bearing deposits declined 20 basis points during the first quarter to 2.23%

    Cumulative deposit beta
    51%
    Q1 FY25

    and our cumulative deposit beta through March was 51%.

    Noninterest expense growth
    2%increased $53 million or 2%
    Q1 FY25

    Noninterest expense increased $53 million or 2%, reflecting increased business activity, technology investments and higher marketing spend.

    EPS growth
    13%EPS growth of 13% year-over-year
    Q1 FY25

    And net income grew $155 million, resulting in EPS growth of 13% year-over-year.

    Noninterest expense decline
    3%declined $119 million or 3%
    Q1 FY25

    Noninterest expense of $3.4 billion declined $119 million or 3%.

    Provision for credit losses
    $219 million
    Q1 FY25

    Provision was $219 million, reflecting changes in macroeconomic factors and portfolio activity

    Effective tax rate
    18.8%
    Q1 FY25

    and our effective tax rate was 18.8%.

    Asset management and brokerage income growth
    5%increased $17 million or 5%
    Q1 FY25

    Asset management and brokerage income increased $17 million or 5% driven by higher brokerage client activity and positive net flows.

    Capital Markets and advisory fees decline
    12%decreased $42 million or 12%
    Q1 FY25

    Capital Markets and advisory fees decreased $42 million or 12%, reflecting lower M&A advisory and trading revenue.

    Lending and deposit services revenue decline
    4%decreased $14 million or 4%
    Q1 FY25

    Lending and deposit services revenue decreased $14 million or 4% in part due to seasonality.

    Mortgage revenue increase
    10%increased $12 million or 10%
    Q1 FY25

    Mortgage revenue increased $12 million or 10%, reflecting higher MSR hedging activity.

    Other noninterest income
    $137 milliondecreased $38 million
    Q1 FY25

    And our other noninterest income of $137 million decreased $38 million and included $40 million of negative Visa derivative adjustments, primarily related to litigation escrow funding.

    Unrecognized gain on Visa Class B shares
    $950 million
    Q1 FY25

    As a reminder, PNC owns 1.8 million Visa Class B shares with an unrecognized gain of approximately $950 million as of March 31.

    Cost reduction goal
    $350 million
    FY25

    We remain focused on expense management. And as we've previously stated, we have a goal to reduce costs by $350 million in 2025 through our continuous improvement program.

    Total delinquencies
    $1.4 billionup $49 million or 4% compared with December 31
    Q1 FY25

    Total delinquencies of $1.4 billion were up $49 million or 4% compared with December 31, which included approximately $55 million of California wildfire forbearance activity.

    Noninterest bearing deposits share
    22%
    Q1 FY25

    As far as the mix goes, we're at 22% of noninterest bearing.

    Harris Williams pipeline
    20%higher than it was this time last year
    Q1 FY25

    Harris Williams in particular, their pipeline right now is close to 20% higher than it was this time last year.

    Industry KPIs

    12
    MetricValueDetails
    Loans$317 billionUSD
    Deposits$421 billionUSD
    Cet1 ratio10.6%%
    Capital returns$800 millionUSD
    Fee income lines$1.8 billionUSD
    Allowance reserves$5.2 billionUSD
    Net interest income$3.5 billionUSD
    Net interest margin2.78%%
    Net charge offs npls$205 millionUSD
    Total operating expenses$3.4 billionUSD
    Provision for credit losses$219 millionUSD
    Efficiency ratio operating leverage—

    Risks & headwinds

    5
    Increased volatility due to tariff uncertaintyover the past two weeks

    roiling the markets and raising concerns of a potential recession

    Mitigation: continue to monitor and evaluate the situation, communicating with our clients to gauge their understanding

    Potential for disruption in client activity due to tariffsbalance of the year

    noninterest income could be pressured throughout the balance of the year

    Mitigation: closely monitor this as these factors continue to develop

    Lower M&A advisory and trading revenueQ1 FY25

    Capital Markets and advisory fees decreased $42 million or 12% linked quarter.

    Mitigation: Pipelines for M&A advisory (Harris Williams) are strong.

    Negative Visa derivative adjustmentsQ1 FY25

    $40 million impact on other noninterest income.

    Potential for higher probability of recession if tariffs are implemented as proposed and remain in effectFuture, if tariffs persist

    it's quite possible the probability of a recession will go up

    Mitigation: actively assessing our portfolios and analyzing a wide range of factors, both positive and negative, that could impact our commercial and consumer exposures.

    What to watch in Q2 FY25

    5

    Full-year Net Interest Income Growth

    next quarter
    Currenton track for record NII / up 6% to 7%
    TargetConfirmation of "record NII" and "6% to 7% growth"

    Why it matters

    NII is a primary driver of bank profitability, and achieving record NII would signal strong core earnings power despite macro headwinds🌐.

    Importantly, we remain on track to deliver positive operating leverage and achieve record NII for the year.

    Q&A highlights

    8

    Seeking more color on the drivers of strong C&I loan growth, specifically if it's transient due to inventory build ahead of tariffs or precautionary draws for a recessionary backdrop.

    Rob Reilly noted broad-based growth and increased utilization as expected, not massive shifts. Bill Demchak added that clients aren't explicitly building inventory for tariffs, but working capital lines inherently finance inventory.

    “It's interesting. In all the dialogue that I've kind of had with clients, nobody is saying they're purposely building inventory in advance of the tariffs. Having said that, most of our lines finance working capital. So almost definitionally, there's some inventory build going on.”

    asked by John Pancari · answered by William Demchak

    2 min read7 chapters

    Detailed Narrative

    01

    Economic Environment and Tariff Uncertainty

    Management highlighted increased market volatility🌐 due to uncertainty regarding tariffs, which has raised concerns about a potential recession. While the situation is fluid, PNC is actively monitoring and assessing potential impacts on client businesses and portfolios. The company emphasizes its strong balance sheet, diversified business mix, and client selection as foundations for performance in uncertain times.

    02

    Strategic Focus and Leadership Addition

    PNC continues to focus on organic growth opportunities, providing superior products and services, and deepening client relationships. The company announced the appointment of Mark Wiedman as President, bringing deep financial services experience to complement the existing team and support the current strategic game plan without changing the overall strategy.

    03

    Balance Sheet Strength and Capital Management

    PNC maintained a strong balance sheet, with tangible book value increasing 5% linked quarter to $100.40 per common share. The estimated CET1 ratio stood at 10.6% as of March 31, with approximately $800 million returned to shareholders through dividends and share repurchases during the quarter. Management expressed confidence in capital flexibility and a willingness to accelerate buybacks at current share prices.

    04

    Loan Growth Dynamics

    While overall average loans declined 1% linked quarter, spot loans increased 1%, driven by a 3% rise in C&I loans to $181 billion. This C&I growth was broad-based, reflecting higher utilization rates (up 80 bps to 50.3%) and new loan production, marking the largest increase since Q4 2022. Management noted that while some inventory build might be occurring, it's not explicitly tariff-driven.

    05

    Net Interest Income and Margin Expansion

    Net interest income decreased 1% linked quarter to $3.5 billion, primarily due to fewer days in the quarter, but was partially offset by lower funding costs and fixed-rate asset repricing. The net interest margin expanded 3 basis points to 2.78%. Management reiterated confidence in achieving record NII for the full year and approaching a 2.90% NIM by Q4 FY25, supported by balance sheet management actions.

    06

    Expense Management and Efficiency

    Noninterest expense declined 3% linked quarter to $3.4 billion, partly due to seasonality and Q4 asset impairments. PNC remains focused on expense management, targeting $350 million in cost reductions for 2025 through its continuous improvement program, which also funds ongoing business and technology investments. The company expects to achieve positive operating leverage for the full year.

    07

    Credit Quality and Reserves

    Credit quality remains strong, with nonperforming loans stable and net charge-offs down to $205 million (26 bps NCO ratio), largely due to timing of📎 CRE office resolutions. The allowance for credit losses totaled $5.2 billion (1.64% of total loans), reflecting increased downside weightings in CECL scenarios and considerations for tariffs. The current reserve implies an unemployment rate of 5% in its economic scenarios.

    AI-generated summary of the company’s earnings call. Not investment advice.