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PNC Reports 2% Commercial Loan Dip Amid Manufacturer ‘Hesitancy’

PNC building

PNC Financial Services Group saw average commercial loans dip in the first quarter as businesses remained cautious about the macroeconomic environment.

Overall, average loans decreased 1%. Within this, consumer loans declined less than 1%, while average commercial loans decreased 2%, the bank said in a Tuesday (April 16) earnings release.

The slight decline in consumer loans was driven by lower credit card and home equity balances, according to the release. The bank attributed the decline in commercial loans to “lower utilization of loan commitments and paydowns outpacing new production.”

“We’ve seen capital spend and inventory build be next to nothing, even though capacity utilization is high and retail sales are high,” William S. Demchak, chairman, president and CEO of PNC, said Tuesday during the company’s quarterly earnings call. “At some point, that’s got to give, but I do think there continues to be hesitancy, by manufacturers in particular, just in the face of this economy.”

Looking ahead, the bank expects average loans to remain stable through the second quarter, according to a presentation released Tuesday.

“Within the corporate and institutional bank, utilization rates have remained below 2023 year-end levels and have not increased in the first quarter as is historically typical,” Robert Q. Reilly, executive vice president and chief financial officer at PNC, said during the call. “We expect utilization to increase throughout the year.”

Among the existing loans, compared to the fourth quarter, delinquencies decreased, while total non-performing loans and net loan charge-offs increased, according to the earnings release.

Where there were increases, they were driven mostly by the bank’s commercial portfolio.

Delinquencies decreased 8% due to lower consumer and commercial loan delinquencies.

Total nonperforming loans (NPLs) increased 9%, “primarily due to higher commercial real estate nonperforming loans,” the release said.

“While NPLs have increased over the past few quarters, our criticized balances have remained relatively consistent,” Reilly said during the call. “The migration of criticized loans to non-performing status is an expected outcome as we work to resolve the occupancy and rate challenges inherent to this portfolio.”

Net loan charge-offs increased 22% during the quarter, “primarily due to higher commercial net loan charge-offs,” according to the release.

“Ultimately, we expected continued charge-offs on this portfolio and, accordingly, we believe we are adequately reserved,” Reilly said.

Looking ahead, PNC expects net loan charge-offs of $225 million to $275 million in the second quarter, compared with $243 million in the first quarter.

The bank reduced its provision for credit losses by 77%, from $232 million in the fourth quarter to $155 million in the first quarter. This move reflected “portfolio activity and improved macroeconomic factors,” it said in the release.

“Regarding our view of the overall economy, we’re expecting economic expansion in the second half of the year, resulting in real GDP growth of approximately 2% in 2024, and unemployment to increase modestly to 4% by year end,” Reilly said.