PNC Financial Services Group recorded a jump in both soured commercial and consumer credits during the fourth quarter, but executives said the Pittsburgh-based bank is well-reserved for
The $562 billion-asset bank reported results Tuesday that were adversely impacted by both one-time items as well as higher credit costs. PNC charged off $200 million of loans, up from
But PNC executives said during a call with analysts that, with the Federal Reserve signaling an end to interest rate hikes and a strong job market paving a path for economic resilience this year, they view credit issues as manageable and well-covered by current reserves. The bank reported $97 million in new loan delinquencies during the fourth quarter.
"Our reserves are appropriate for what we expect to occur," PNC Chief Financial Officer Robert Reilly said during the call, noting forecasts that the economy could avoid a sharp downturn in the wake of aggressive rate hikes over the past two years.
In past cycles, spiking rates tilted the economy into a recession. But the
PNC's fourth-quarter allowance for credit losses of $5.5 billion, or 1.70% of its total loans, was on par with the prior quarter. The bank said that the buffer is sufficient to cover a modest economic slowdown, which reflects the bank's downside view of the economic outlook.
"Simply put, if the economy is worse than a mild recession, then you would expect our total reserve to increase,"
However, he added, "Right now, we don't expect that to happen."
PNC reported fourth-quarter net income of $883 million, down 43% from the same period a year earlier. It posted earnings per share of $1.85 per share, down from $3.47 in the final quarter of 2022.
The bank's EPS was below the $2.12 that analysts polled by FactSet Research Systems had forecast, though it was dragged lower by a $515 million charge to help rebuild the Federal Deposit Insurance Corp.'s Deposit Insurance Fund following the failures of three regional banks. Other big banks that have reported fourth-quarter earnings to date posted
PNC also reported $150 million of charges tied to its decision to cut its workforce by 4% late last year. Those moves are supposed to
PNC said its core noninterest expenses, which exclude the special FDIC assessment, decreased 2% from a year earlier.
"Expense discipline remains a top priority for us," Demchak said. "And accordingly, we are targeting stable expenses for 2024."
The bank reported adjusted earnings per share of $3.16, which was below the year-earlier level by 9%, as revenue declined 7% to $5.4 billion. Hampered by high rates, increased funding costs and flat lending, PNC's net interest income fell 8% to $3.4 billion.
The bank's total loans increased 1% from a year earlier to $325 billion. Noninterest income declined by 6%.
Analysts at D.A. Davidson said in a report this week that the U.S. large banks that have reported their quarterly results so far collectively show that net interest income remains "under pressure." That's because of both soft loan demand and deposit costs that continue to climb, albeit at a slower pace than in 2023.
Charge-offs and credit costs, too, are mounting. But at least for PNC and other large banks, the level of losses appears "very manageable," according to the D.A. Davidson analysts, given the sturdy economy and growing market expectations for interest rate cuts later this year.
