The PNC Financial Services Group, Inc. Q2 FY2025 earnings call

Bill Demchak noted a strong second quarter with net income $1.6 billion or $3.85 per diluted share. Loans grew 2%, revenue increased 4% while non-interest expenses were stable, resulting in 10% PPNR growth. Business highlights included: in CNIB, strong loans and commitments with good credit trends; in retail banking, accelerating customer growth with consumer checking accounts up 2% Y/Y (6% in Southwest) and record debit/credit card activity, plus a $1.5 billion branch investment plan; in asset management, positive net flows and new client acquisition up 16% linked quarter with growth in expansion markets accelerating.

Loans grew 2% during the quarter, with commercial loan growth fueled by the highest level of new production in ten quarters. Net interest income was $3.6 billion, an increase of $79 million or 2%, with a net interest margin of 2.8%, up 2 basis points. Non-interest income increased $130 million or 7%, with fee income reaching $1.9 billion, up $55 million or 3% linked quarter. Average deposits increased $2 billion, driven by growth in CDs, with non-interest-bearing balances at $1 billion and the rate paid on interest-bearing deposits at 2.24%, up 1 basis point. Credit metrics showed non-performing loans at $2.1 billion, down $180 million; total delinquencies at $1.3 billion, down $128 million; net loan charge-offs at $198 million, down $7 million; and the allowance for credit losses at $5.3 billion, 1.62% of total loans.

For full-year 2025, average loans are expected to be up ~1% (previously stable), net interest income up ~7% (previously 6%-7%), non-interest income up 4%-5% (previously 5%), total revenue up ~6%, non-interest expenses up ~1%, and effective tax rate ~19%. For the third quarter of 2025, average loans are expected to be up ~1%, net interest income up ~3%, fee income up 3%-4%, other non-interest income $150M-$200M, total revenue up 2%-3%, non-interest expense up ~2%, and net charge-offs $275M-$300M.

Heightened economic uncertainty impacting fee income; uncertainty around regulatory changes and their impact on capital and operations; tariffs potentially affecting loan utilization and overall economic activity.

Q: Question on the pickup in loan growth in the quarter, specifically commercial loan growth and sustainability.

A: Rob Reilly said loan growth was a combination of utilization uptick due to tariffs and new production in growth markets, with average loans expected to be up 1% for full-year 2025.

Q: Question on fee income outlook for full year, with nudging lower due to economic uncertainty.

A: Rob Reilly explained the downward nudge to fee income guidance due to heightened uncertainty after January, with some soft spots in corporate spending, mortgage, and private equity valuations but major categories resilient.

Q: Question on capital levels and relative to larger peers.

A: Rob Reilly said PNC is in a healthy excess capital position, with CET1 at 9.4% in stress tests, and they think current capital levels are appropriate with flexibility for share repurchases and dividend increase.

Q: Question on retail lending strategy and inorganic growth.

A: Bill Demchak said extremely unlikely to pursue inorganic growth in retail credit space, focusing on organic growth through deeper penetration with existing clients and investment in product capability, credit underwriting, etc.