The PNC Financial Services Group, Inc. (NYSE:PNC) Q4 2019 Earnings Conference Call - Final Transcript

Jan 15, 2020 • 09:30 am ET

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The PNC Financial Services Group, Inc. (NYSE:PNC) Q4 2019 Earnings Conference Call - Final Transcript

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Q & A
Operator
Operator

Thank you. [Operator Instructions] Your first question comes from the line of John Pancari with Evercore. Please go ahead.

Analyst
John Pancari

Good morning.

Executive
Robert Q. Reilly

Hey, good morning, John.

Analyst
John Pancari

On the provision guidance, the $225 million to $300 million for the quarter, can you give us a little bit more color? I know, going forward, you're going to guide more on charge-offs as you said, but...

Executive
Robert Q. Reilly

Yeah.

Analyst
John Pancari

But regarding the quarter, can you give us a little more color behind that $225 million to $300 million? How much of that is the CECL day 2 component and then how much of that is reflecting underlying credit trends? Thanks.

Executive
Robert Q. Reilly

Yeah, sure. Yeah, sure, John. So for the first quarter guidance, I kept it simple, and we're just going to take forecasted charge-offs, which we expect to be at the same level that we experienced in the fourth quarter of 2019. And then add to that, the CECL loan loss rates of the fourth quarter of '19 to our projected loan growth. And that's the simple math.

Analyst
John Pancari

Okay. Okay. So, and that is carrying forward like you said, or assuming that fourth quarter charge-off level of 35 basis points which was up a fair amount from last quarter and from the year ago, so that's the normalization you're talking about. Where -- can you give us a bit more detail around that normalization. I know you mentioned card and auto, but also you've had several commercial credits come up over the past several quarters that have been impacting. Is there a trend that you're seeing on the commercial side as well? Thanks.

Executive
William S. Demchak

Hey, John, it's Bill. We talk about normalization, and we have for years where our charge-off rate is below what we would expect to see through the cycle. But I would tell you, our near-term pressure on charge-offs is more related to card and auto than anything else, and it's not really related to changing in the economy.

We dipped our toe into some -- the lower end of our credit bucket probably a year ago on those -- those vintages are starting to play through. We've subsequently shut that down six months ago. So it's going to work its way through the snake [Phonetic] here, but I don't actually see personally that charge-offs are so much normalizing, because of the economy per se, as we have some elevated consumer stuff that will reverse through time.

The other thing that we had a big debate internally just on what to guide, is it related to provision going forward, because CECL and the impact to CECL has so many variables on what provision will be. We can reasonably forecast charge-offs, but of course outlook on economy, mix of loan growth, pace of loan growth, many other factors ultimately impact how that provision is going to behave beyond charge-offs. So we're giving it our best shot, we could be high or low. Then we'll see, yeah.

Executive
Robert Q. Reilly

Right. Well, it's new -- CECL's new. And it's been a