PNC Reports First Quarter 2024 Net Income of $1.3 Billion

The PNC Financial Services Group, Inc. (NYSE: PNC) today reported:

From Bill Demchak, PNC Chairman and Chief Executive Officer:

“PNC delivered solid first quarter results generating net income of $1.3 billion which included an additional $130 million pre-tax FDIC special assessment. During the quarter, we grew customers, reduced expenses, increased spot deposits, maintained stable credit quality and continued to build upon our strong liquidity and capital positions. The strength of our balance sheet, diverse business mix, and the quality of our people, position us well for continued growth across our franchise as the year progresses.”

Income Statement Highlights

First quarter 2024 compared with fourth quarter 2023

• Total revenue of $5.1 billion decreased $216 million, or 4%, due to lower net interest income and noninterest income.
• Net interest income of $3.3 billion decreased $139 million, or 4%, reflecting increased funding costs, lower loan balances and one fewer day in the quarter.
  • Net interest margin of 2.57% decreased 9 basis points.
• Noninterest income of $1.9 billion decreased $77 million, or 4%.
  • Fee income of $1.7 billion decreased $74 million, or 4%, primarily due to lower capital markets and advisory activity and a seasonal decline in card and cash management fees.
  • Other noninterest income of $135 million decreased $3 million.
• Noninterest expense of $3.3 billion decreased $740 million, or 18%, and included non-core noninterest expenses of $130 million in the first quarter and $665 million in the fourth quarter.
  • Core noninterest expense of $3.2 billion decreased $205 million, or 6%, driven by lower or stable expenses across all categories, reflecting a continued focus on expense management.
• Provision for credit losses was $155 million in the first quarter, reflecting portfolio activity and improved macroeconomic factors. The fourth quarter of 2023 included a provision for credit losses of $232 million.
• The effective tax rate was 18.8% for the first quarter and 16.3% for the fourth quarter.

Balance Sheet Highlights

First quarter 2024 compared with fourth quarter 2023 or March 31, 2024 compared with December 31, 2023

• Average loans of $320.6 billion decreased $4.0 billion, or 1%.
  • Average commercial loans of $219.2 billion decreased $3.4 billion, or 2%, driven by lower utilization of loan commitments and paydowns outpacing new production.
  • Average consumer loans of $101.4 billion declined less than 1%.
• Credit quality performance:
  • Delinquencies of $1.3 billion decreased $109 million, or 8%, driven by lower consumer and commercial loan delinquencies.
  • Total nonperforming loans of $2.4 billion increased $200 million, or 9%, primarily due to higher commercial real estate nonperforming loans.
  • Net loan charge-offs of $243 million increased $43 million, primarily due to higher commercial net loan charge-offs.
  • The allowance for credit losses of $5.4 billion was relatively unchanged. The allowance for credit losses to total loans was 1.68% at March 31, 2024, and 1.70% at December 31, 2023.
• Average deposits of $420.2 billion decreased $3.8 billion, or 1%, reflecting seasonally lower commercial deposits.
  • Deposits at March 31, 2024, of $425.6 billion increased $4.2 billion, or 1%, reflecting higher commercial and consumer deposits balances.
• Average investment securities of $135.4 billion decreased $2.0 billion, or 1%.
• Average Federal Reserve Bank balances of $47.8 billion increased $5.6 billion.
  • Federal Reserve Bank balances at March 31, 2024, of $53.2 billion increased $9.9 billion, or 23%, reflecting higher period end deposits.
• Average borrowed funds of $75.6 billion increased $2.7 billion, or 4%, primarily due to parent company senior debt issuances early in the quarter.
• PNC maintained a strong capital and liquidity position.
  • On April 3, 2024, the PNC board of directors declared a quarterly cash dividend on common stock of $1.55 per share to be paid on May 6, 2024 to shareholders of record at the close of business April 15, 2024.
  • PNC returned $0.8 billion of capital to shareholders, reflecting more than $0.6 billion of dividends on common shares and more than $0.1 billion of common share repurchases, representing 0.9 million shares.
  • The Basel III common equity Tier 1 capital ratio was an estimated 10.1% at March 31, 2024 and 9.9% at December 31, 2023.
  • PNC’s average LCR for the three months ended March 31, 2024, was 107%, exceeding the regulatory minimum requirement throughout the quarter.

First quarter 2024 net income of $1.3 billion, or $3.10 per diluted common share, included $103 million of post-tax expenses pertaining to the increased FDIC special assessment. Excluding the impact of this item, adjusted diluted earnings per common share was $3.36.

The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported (GAAP) amounts. This information supplements results as reported in accordance with GAAP and should not be viewed in isolation from, or as a substitute for, GAAP results. Fee income, a non-GAAP financial measure, refers to noninterest income in the following categories: asset management and brokerage, capital markets and advisory, card and cash management, lending and deposit services, and residential and commercial mortgage. Information in this news release, including the financial tables, is unaudited.

Total revenue for the first quarter of 2024 decreased $216 million from the fourth quarter of 2023 and $458 million compared with the first quarter of 2023. In both comparisons, the decline was due to lower net interest income and noninterest income.

Net interest income of $3.3 billion decreased $139 million compared to the fourth quarter of 2023, reflecting increased funding costs, lower loan balances and one fewer day in the quarter. Net interest margin was 2.57% in the first quarter of 2024, decreasing 9 basis points in comparison with the fourth quarter of 2023, primarily as a result of higher funding costs.

Compared to the first quarter of 2023, net interest income decreased $321 million and net interest margin declined 27 basis points, as the benefit of higher interest-earning asset yields was more than offset by increased funding costs.

Noninterest income for the first quarter of 2024 decreased $77 million compared with the fourth quarter of 2023. Asset management and brokerage revenue increased $4 million and included the impact of favorable equity markets. Capital markets and advisory revenue declined $50 million, driven by lower merger and acquisition advisory activity, partially offset by higher underwriting fees. Card and cash management fees decreased $17 million as seasonally lower consumer transaction volumes were partially offset by higher treasury management fees. Lending and deposit services declined $9 million reflecting the reduction of certain checking product fees. Residential and commercial mortgage revenue decreased $2 million reflecting lower residential mortgage activity. Other noninterest income decreased $3 million, and included lower gains on sales. The first quarter also included negative Visa Class B derivative fair value adjustments of $7 million. Visa Class B derivative fair value adjustments were negative $100 million in the fourth quarter.

Noninterest income for the first quarter of 2024, decreased $137 million from the first quarter of 2023. Fee income declined $14 million, as growth in card and cash management and asset management and brokerage fees were more than offset by lower residential and commercial mortgage revenue. Other noninterest income decreased $123 million primarily driven by a decline in private equity revenue. The first quarter of 2023 also included negative Visa Class B derivative fair value adjustments of $45 million.

Noninterest expense for the first quarter of 2024 decreased $740 million in comparison to the fourth quarter of 2023. The first quarter of 2024 included non-core noninterest expenses of $130 million related to the increased FDIC special assessment and the fourth quarter of 2023 included $515 million pertaining to the FDIC special assessment as well as $150 million of workforce reduction charges. Excluding the impact of these items, core noninterest expense was $3.2 billion for the first quarter of 2024, decreasing $205 million, or 6%, from the fourth quarter of 2023 driven by lower or stable expenses across all categories, reflecting a continued focus on expense management.

Noninterest expense of $3.3 billion for the first quarter of 2024, which included a $130 million FDIC special assessment, was stable compared with the first quarter of 2023. Excluding the impact of this item, core noninterest expense was $3.2 billion for the first quarter of 2024, decreasing $117 million, or 4%, from the first quarter of 2023.

The effective tax rate was 18.8% for the first quarter of 2024, 16.3% for the fourth quarter of 2023 and 17.2% for the first quarter of 2023.

CONSOLIDATED BALANCE SHEET REVIEW

Average total assets were $562.8 billion in the first quarter of 2024, relatively stable in comparison to both the fourth quarter of 2023 and the first quarter of 2023.

Average loans for the first quarter of 2024 decreased $4.0 billion compared to the fourth quarter of 2023. Average commercial loans decreased $3.4 billion driven by lower utilization of loan commitments and paydowns outpacing new production. Average consumer loans declined $0.6 billion compared to the fourth quarter of 2023, primarily driven by lower credit card and home equity balances.

Average loans for the first quarter of 2024 decreased $4.9 billion in comparison to the first quarter of 2023. Average commercial loans decreased $5.3 billion compared to the first quarter of 2023, driven by lower utilization of loan commitments. Average consumer loans were relatively stable.

Average investment securities of $135.4 billion in the first quarter of 2024 declined $2.0 billion and $8.0 billion from the fourth quarter of 2023 and the first quarter of 2023, respectively. In both comparisons, limited purchase activity was more than offset by portfolio paydowns and maturities. The duration of the investment securities portfolio was 4.0 years at March 31, 2024, 4.1 years at December 31, 2023 and 4.4 years at March 31, 2023.

Net unrealized losses on available for sale securities were $4.0 billion at March 31, 2024 increasing from $3.6 billion at December 31, 2023 and $3.8 billion at March 31, 2023. In both comparisons, the increase primarily reflected the impact of higher interest rates.

Average Federal Reserve Bank balances for the first quarter of 2024 were $47.8 billion, increasing $5.6 billion from the fourth quarter of 2023 and $14.3 billion from the first quarter of 2023. In both comparisons, the increase reflected lower loans and securities balances as well as higher average borrowed funds.

Federal Reserve Bank balances at March 31, 2024 were $53.2 billion, increasing $9.9 billion from December 31, 2023.

Average deposits for the first quarter of 2024 were $420.2 billion, decreasing $3.8 billion from the fourth quarter of 2023 driven by seasonally lower commercial deposits. Compared to the first quarter of 2023, average deposits decreased $16.1 billion due to lower consumer and commercial deposits, reflecting the impact of quantitative tightening by the Federal Reserve and increased customer spending. Noninterest-bearing balances as a percentage of average deposits decreased in both comparisons reflecting growth in interest-bearing deposits as a result of the higher interest rate environment, as well as a slowing pace of decline in noninterest-bearing balances in the comparison to fourth quarter 2023.

Deposits at March 31, 2024, were $425.6 billion and increased $4.2 billion, or 1%, from December 31, 2023, reflecting higher commercial and consumer deposits.

Average borrowed funds of $75.6 billion in the first quarter of 2024 increased $2.7 billion compared to the fourth quarter of 2023 and $12.6 billion compared to the first quarter of 2023. In both comparisons, the increase was driven primarily by parent company senior debt issuances.

PNC maintained a strong capital position. Common shareholders’ equity at March 31, 2024 increased $0.2 billion from December 31, 2023, driven by the benefit of net income, partially offset by dividends paid and share repurchases as well as a decline in accumulated other comprehensive income.

As a Category III institution, PNC has elected to exclude accumulated other comprehensive income related to both available for sale securities and pension and other post-retirement plans from CET1 capital. Accumulated other comprehensive income at March 31, 2024 declined $0.3 billion from December 31, 2023 due to securities and swaps valuation changes as the benefit of paydowns and maturities was more than offset by the impact of higher interest rates. Compared to March 31, 2023, accumulated other comprehensive income improved $1.1 billion, reflecting the benefit of paydowns and maturities.

In the first quarter of 2024, PNC returned $0.8 billion of capital to shareholders, reflecting more than $0.6 billion of dividends on common shares and more than $0.1 billion of common share repurchases, representing 0.9 million shares. Consistent with the Stress Capital Buffer (SCB) framework, which allows for capital return in amounts in excess of the SCB minimum levels, our board of directors has authorized a repurchase framework under the previously approved repurchase program of up to 100 million common shares, of which approximately 44% were still available for repurchase at March 31, 2024.

In light of the Federal banking agencies proposed rules to adjust the Basel III capital framework, second quarter 2024 share repurchase activity is expected to approximate recent quarterly average share repurchase levels. PNC continues to evaluate the potential impact of the proposed rules and may adjust share repurchase activity depending on market and economic conditions, as well as other factors.

PNC’s SCB for the four-quarter period beginning October 1, 2023 is the regulatory minimum of 2.5%.

On April 3, 2024, the PNC board of directors declared a quarterly cash dividend on common stock of $1.55 per share to be paid on May 6, 2024 to shareholders of record at the close of business April 15, 2024.

At March 31, 2024, PNC was considered “well capitalized” based on applicable U.S. regulatory capital ratio requirements. For additional information regarding PNC’s Basel III capital ratios, see Capital Ratios in the Consolidated Financial Highlights. PNC elected a five-year transition provision effective March 31, 2020 to delay until December 31, 2021 the full impact of the Current Expected Credit Losses (CECL) standard on regulatory capital, followed by a three-year transition period. Effective for the first quarter of 2022, PNC is now in the three-year transition period, and the full impact of the CECL standard is being phased-in to regulatory capital through December 31, 2024. The fully implemented ratios reflect the full impact of CECL and exclude the benefits of this transition provision.

Provision for credit losses was $155 million in the first quarter of 2024, reflecting portfolio activity and improved macroeconomic factors. The fourth quarter of 2023 included a provision for credit losses of $232 million.

Net loan charge-offs were $243 million in the first quarter of 2024, increasing $43 million compared to the fourth quarter of 2023 and $48 million compared to the first quarter of 2023. In both comparisons, the increase was driven by higher commercial and consumer net loan charge-offs.

The allowance for credit losses was $5.4 billion at March 31, 2024, $5.5 billion at December 31, 2023 and $5.4 billion at March 31, 2023. The allowance for credit losses as a percentage of total loans was 1.68% at March 31, 2024, 1.70% at December 31, 2023 and 1.66% at March 31, 2023.

Delinquencies at March 31, 2024 were $1.3 billion, decreasing $109 million from December 31, 2023 due to lower consumer and commercial loan delinquencies. Compared to March 31, 2023, delinquencies decreased $51 million due to lower commercial loan delinquencies.

Nonperforming loans at March 31, 2024 were $2.4 billion, increasing $200 million from December 31, 2023, primarily due to higher commercial real estate nonperforming loans. Compared to March 31, 2023, nonperforming loans increased $370 million, reflecting higher commercial nonperforming loans, partially offset by lower consumer nonperforming loans.

Retail Banking Highlights

First quarter 2024 compared with fourth quarter 2023

• Earnings increased 1%, as higher noninterest income, a lower provision for credit losses and lower noninterest expense were partially offset by lower net interest income.
  • Noninterest income increased 6%, reflecting lower negative Visa Class B derivative fair value adjustments, partially offset by lower residential mortgage banking activity and a seasonal decline in card and cash management fees. Visa Class B derivative fair value adjustments were negative $7 million in the first quarter of 2024 compared to negative $100 million in the fourth quarter of 2023.
  • Noninterest expense decreased 1%, reflecting a continued focus on expense management partially offset by higher technology investment.
  • Provision for credit losses of $118 million in the first quarter of 2024 reflected the impact of portfolio activity and improved macroeconomic factors.
• Average loans were stable.
• Average deposits decreased 1%, reflecting the impact of continued inflationary pressures and competitive pricing dynamics.

First quarter 2024 compared with first quarter 2023

• Earnings increased 68%, primarily due to higher revenue, a lower provision for credit losses as well as lower noninterest expense.
  • Noninterest income increased 3%, reflecting lower negative Visa Class B derivative fair value adjustments, partially offset by lower card and cash management fees. The first quarter of 2023 included negative Visa Class B derivative fair value adjustments of $45 million.
  • Noninterest expense decreased 5%, and included lower personnel expense.
• Average loans were stable.
• Average deposits decreased 5%, reflecting the impact of quantitative tightening by the Federal Reserve and competitive pricing dynamics.

Corporate & Institutional Banking Highlights

First quarter 2024 compared with fourth quarter 2023

• Earnings decreased 8%, driven by lower noninterest and net interest income, partially offset by lower provision for credit losses and lower noninterest expense.
  • Noninterest income decreased 11%, due to lower capital markets and advisory fees and gains on sales.
  • Noninterest expense decreased 5%, driven by lower business activity and a continued focus on expense management.
  • Provision for credit losses of $47 million in the first quarter of 2024 reflected portfolio activity and improved macroeconomic factors.
• Average loans decreased 2%, driven by lower utilization of loan commitments and paydowns outpacing new production.
• Average deposits decreased 1%, reflecting seasonal declines in corporate deposits.

First quarter 2024 compared with first quarter 2023

• Earnings increased 6%, due to higher net interest income and a decline in noninterest expense, partially offset by a higher provision for credit losses.
  • Noninterest income remained stable, as higher treasury management product revenue was largely offset by lower commercial mortgage banking activity.
  • Noninterest expense decreased 2%, reflecting a continued focus on expense management.
• Average loans decreased 3%, driven by lower utilization of loan commitments.
• Average deposits decreased 2%, reflecting the impact of quantitative tightening by the Federal Reserve and competitive pricing dynamics.

Asset Management Group Highlights

First quarter 2024 compared with fourth quarter 2023

• Earnings increased 35%, reflecting lower noninterest expense and higher noninterest income.
  • Noninterest income increased 3%, reflecting higher average equity markets.
  • Noninterest expense decreased 7%, driven by lower personnel expense.
• Discretionary client assets under management increased 3%, driven by higher spot equity markets.
• Average loans increased 1%, primarily due to growth in residential mortgage loans.
• Average deposits increased 2%, and included growth in CD and deposit sweep balances.

First quarter 2024 compared with first quarter 2023

• Earnings increased 87%, due to higher net interest income, a decline in noninterest expense and a provision recapture.
  • Noninterest income was stable.
  • Noninterest expense decreased 5%, reflecting a continued focus on expense management.
• Discretionary client assets under management increased 10%, primarily driven by higher spot equity markets.
• Average loans increased 12%, primarily driven by growth in residential mortgage loans.
• Average deposits increased 2%, reflecting growth in CD and deposit sweep balances, partially offset by the impact of quantitative tightening by the Federal Reserve and redeployment of funds to assets under management.

Other

The “Other” category, for the purposes of this release, includes residual activities that do not meet the criteria for disclosure as a separate reportable business, such as asset and liability management activities, including net securities gains or losses, ACL for investment securities, certain trading activities, certain runoff consumer loan portfolios, private equity investments, intercompany eliminations, corporate overhead net of allocations, tax adjustments that are not allocated to business segments, exited businesses and the residual impact from funds transfer pricing operations.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.