Amid falling revenue, PNC Financial Services Group said it will trim 4% of its workforce to curtail costs by $325 million and prop up its profitability in 2024.
The $557 billion-asset bank's executives said during a third-quarter earnings call Friday that PNC initiated the staff cuts earlier this month in response to lower lending activity and declining interest income. Total revenue of $5.3 billion was down $60 million from the prior quarter and down $316 million from a year earlier.
The Pittsburgh-based bank had acknowledged earlier this week that it was cutting jobs. But it left many of the details of the plan, which will span PNC's geographic footprint and business lines, for its earnings presentation and call on Friday.
"What's new is basically dropping the run rate related to personnel and just tightening the ship in what is a tougher revenue environment," CEO Bill Demchak told analysts on the call.
The projected savings, which amount to about 2% of PNC's expected 2023 expenses, are projected to drop to the bottom line next year. They will come on top of $400 million-$450 million of savings from an annual "continuous improvement program" that was already underway, PNC said.
In July, the bank initiated a round of layoffs in its mortgage and home equity divisions. Home lending is under heavy pressure across the industry after mortgage rates more than doubled over the past two years.
In total, PNC is targeting $725 million of 2024 expense cuts, though the layoffs will necessitate a $150 million one-time charge in the fourth quarter.
The cuts will likely boost PNC's bottom line next year, but its fourth-quarter earnings will be adversely impacted by the staff reduction charge, Autonomous Research analyst John McDonald wrote in a note to clients.
Meanwhile, Raymond James analyst Michael Rose lowered his 2024 earnings per share projection for PNC. He cited a belief that the bank's net interest income and fee income will be lower than previously expected, and that its credit costs will be higher than previously projected, as factors offsetting the bank's cost savings.
Rose estimated operating earnings per share of $13.45 for this year and $12.65 for 2024. Still, he maintained his "market perform" rating on PNC's shares.
PNC Chief Financial Officer Robert Reilly explained the expense reductions by saying that 11 Federal Reserve interest rate hikes since early 2022 have taken a toll on bread-and-butter interest income and pushed up funding costs.
The trends crimped PNC's net interest margin, which declined by eight basis points from the second quarter to 2.71%. The bank's net interest income declined by $92 million, or 3%, from the prior quarter.
Third-quarter loans were down 2% from the prior quarter and averaged $320 billion, as more commercial borrowers moved to the sidelines amid the lofty rates.
Deposits were down 1% to $423 billion, even as PNC paid up for funding. The rate the bank paid on interest-bearing deposits increased to 2.26%, up from 1.96% for the prior quarter. That trend more than offset gains on loan yields of 18 basis points in the quarter to 5.75%.
PNC started 2023 with about 61,500 employees. It said the layoffs would be nearly completed by the end of this year.
"While decisions involving personnel are never easy, we believe they will help us more effectively and efficiently deliver for our customers and stakeholders, and we'll continue to be diligent in our expense management going forward," Demchak said.
Reilly emphasized that, following the July cuts, every expense category in the third quarter remained stable or declined from the second quarter. Overall noninterest expense of $3.2 billion was down 4%. Still, with no end in sight to high rates, more actions were needed to keep costs in check next year, he said.
"The current environment poses meaningful pressures," Reilly said. "As a result, we took a hard look at our organizational structure and identified opportunities to operate more efficiently through staff reductions."
PNC reported third quarter net income of $1.57 billion, or $3.60 per share. That was up from $1.5 billion, or $3.36, for the prior quarter but down from $1.64 billion, or $3.78, a year earlier. Analysts polled by FactSet Research Systems were expecting third quarter earnings of $3.10 per share.
