The PNC Financial Services Group, Inc. (NYSE:PNC) Q4 2014 Earnings Conference Call - Final Transcript

Jan 16, 2015 • 10:00 am ET


The PNC Financial Services Group, Inc. (NYSE:PNC) Q4 2014 Earnings Conference Call - Final Transcript


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need to build deeper, more profitable relationships with them. With regard to mortgage, Rob will talk with you in a few minutes about the financial results and there is no denying that it remains a challenging time for this segment of the industry.

Strategically, we've made a lot of progress in cleaning up the mortgage business we acquired as part of the National City deal and increasingly making it a core part of our consumer product offering. We have and we will continue to improve the home buying experience for those of our customers who come to us with their mortgage needs. Lastly, looking at technology, we made a great deal of progress over the last year, particularly with regard to improving our cyber defenses and our data center strategy. We have a lot of ground

Bill Demchak

still to cover as we execute our multiyear technology plan, but we are right where we aim to be in this effort to improve long-term efficiency, effectiveness, and scalability. So we are executing well with regard to the things that we can control. As I turn back to the fourth-quarter results, you're going to see that revenues were elevated by gains on asset dispositions, and expenses were elevated due to a contribution to the PNC Foundation as well as higher legal and compliance costs. While there are a number of elevated items in both revenues and expenses, they all basically net to roughly zero. So you can view our reported pre-tax pre-provision earnings as largely representing our core pretax, pre-prevision earnings.

However, below the line we did have one specific item that drove a lower than normal effective tax rate, and Rob will take you through some more details on this. One thing you will notice on our balance sheet is that our security balances remained flat quarter to quarter, versus the declines we had posted in the second and third quarter. In fact, during the course of the fourth quarter, we tactically added swaps, securities, and some forward starting positions to the balance sheet. We remain very asset sensitive; but inside of this core position, you will occasionally see us tactically move the portfolio composition and related duration, as we did in the fourth quarter.

I like how we are positioned for 2015 and beyond. The coming year looks a lot like 2014 at the moment, which means revenue growth will remain a challenge, particularly until we get a rise in rates. In addition, while we and the rest of the industry continue to benefit from abnormally low credit costs, this will eventually reverse itself. These two factors, interest rates and credit costs, will play off against each other as we move into 2015 and beyond. Notwithstanding these headwinds, we are a year further into the execution of our strategic priorities, and we continue to make important progress across the board. We enjoy a stronger capital position as we enter 2015; we have a more liquid balance sheet that is now compliant with