PNC Financial Services Group Inc. reported that average commercial loan balances declined in the first quarter as companies remained cautious about the macroeconomic environment.
Overall, average loan volumes fell 1%, with consumer loans down less than 1% and commercial loans down 2%, the bank said in its earnings release on Tuesday (April 16).
The slight decline in consumer loans was due to lower credit card and home equity loan balances, the bank said in a statement. The decline in commercial loans was due to “lower utilization of loan commitments and repayments exceeding new lending.”
“Despite high capacity utilization and strong retail sales, capital spending and inventory builds remain largely muted,” PNC Chairman, President and CEO William S. Demchak said during the company's quarterly earnings call on Tuesday. “Though we expect things to improve at some point, we believe manufacturers, in particular, remain hesitant in the face of the current economic conditions.”
Going forward, the bank expects average loan sizes to remain stable through the second quarter, according to a presentation released on Tuesday.
“In corporate and institutional banking, utilization rates remain below levels expected for the end of 2023 and are not seeing the historically typical first-quarter uptick,” Robert Q. Reilly, PNC's executive vice president and chief financial officer, said on a conference call. “We expect utilization rates to increase throughout the year.”
According to the financial results report, delinquencies on existing loans decreased compared to the fourth quarter, but total nonperforming loans and net charge-offs increased.
If there was an increase, it was mainly due to the bank's commercial portfolio.
Delinquency rates fell 8% due to lower delinquencies on consumer and commercial loans.
Total non-performing loans increased 9%, “primarily due to higher non-performing loans in commercial real estate,” the statement said.
“While non-performing loans have increased over the past several quarters, our troubled loan balance has remained relatively stable,” Reilly said on the conference call. “The transition of troubled loans to non-performing is an expected outcome as we work to resolve the occupancy and rate challenges inherent in this portfolio.”
Net loan charge-offs increased 22 percent during the quarter, “primarily due to higher commercial net loan charge-offs,” according to the release.
“Ultimately, we expect to continue to experience charge-offs in this portfolio and believe we have adequately reserved for them,” Reilly said.
Looking ahead, PNC expects second-quarter net charge-offs to be between $225 million and $275 million, compared with $243 million in the first quarter.
The bank reduced its loan loss provisions by 77% to $155 million in the first quarter from $232 million in the fourth quarter, a move that reflected “improving portfolio activity and macroeconomic factors,” the bank said in a statement.
“As for our overall outlook for the economy, we expect the economy to expand in the second half of the year, with real GDP growth of about 2% in 2024 and the unemployment rate rising modestly to 4% by the end of the year,” Reilly said.
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