Looking at the second quarter of 2024 compared to the first quarter of 2024, we expect average loans to be stable, net interest income to be down approximately 1%. And as I mentioned previously, we expect NII and net interest margin to trough in the second quarter. Fee income to be up 1% to 2%. Other non-interest income to be in the range of $150 million and $200 million, excluding Visa activity. Taking the component pieces of revenue together, we expect total revenue to be stable. We expect total core non-interest expense to be up 2% to 4%. We expect second quarter net charge-offs to be between $225 million and $275 million. As a reminder, PNC owns 3.5 million Visa class B shares with an unrecognized gain of approximately $1.6 billion. Under the terms of Visa’s current exchange program scheduled to close on or about May 3, Class B shareholders will have the opportunity to monetize 50% of their holdings.
We’ve not included the impact of monetizing the Visa gain in our forecast. Turning to Slide 14. Our full year 2024 guidance is unchanged from our January earnings call. And as a reminder, for the full year 2024 compared to the full year 2023, we expect average loan growth of approximately 1%. Total revenue to be stable to down 2%. Inside of that, our expectation is for net interest income to be down in the range of 4% to 5%, and non-interest income to be up 4% to 6%. Core non-interest expense, which excludes the FDIC assessment, is expected to be stable and we expect our affected tax rate to be approximately 18.5%. And with that, Bill and I are ready to take your questions.
Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first questions come from the line of Betsy Graseck with Morgan Stanley. Please proceed with your questions.
Betsy Graseck: Hi. Good morning.
William Demchak: Good morning.
Betsy Graseck: Okay. Just want to make sure you can hear me okay.
William Demchak: Sure.
Betsy Graseck: Yeah. No. This is great. The first question I have just has to deal (ph) with how you’re thinking about the NII indicating, 2Q the trough improving from there. And I would think that the majority of that improvement is coming from loan growth. But correct me If I’m wrong, how you’re thinking about that NII trajectory into second half of the year? And then, well, I’ll start there.
Robert Reilly: Okay. Yeah. Good morning, Betsy. This is Rob. So in terms of NII and the trajectory that we’re on, we knew at the beginning of the year that we would trough around this time in the second quarter and that’s what’s happening. We expect to grow from that trough level based on the repricing of our fixed rate assets as rates settle down. There is some reliance on the back half for loan growth, but all consistent with our full year guidance. Average loans up 1%.
Betsy Graseck: And just on that loan growth fees. You go ahead, sir.
William Demchak: I was just going to say that the largest driver is repricing of fixed rate assets. We expect some loan growth, but it’s not a heroic number in there. It’s simply to roll down of our securities book.
Betsy Graseck: Okay. Got it. Yeah. All right. And on the loan side, it is interesting to see the utilization rates ticking down here. Do you think that’s just a function of Fed funds is 5.5 and that’s the base rate from which C&I is priced off of, or is there other dynamics there besides just rate?
William Demchak: It’s a variety of things. I think the capital markets activity in the first quarter in investment-grade debt put a lot of cash into the system and you just — you saw companies that could hit that market, pay down revolver. So that was sort of a near term impact to it. There’s — as when we look out, there hasn’t been any real inventory build, which I would expect given retail sales. There hasn’t been much CapEx and capacity utilization has been holding constant at a pretty high level. So, at some point this needs to turn, but I think the first quarter kind of surprised us. And my best guess was that was on the back of just how liquid the public markets were.
Betsy Graseck: Okay. Got it. Thanks so much. Really appreciate it, Bill.
Operator: Thank you. Our next questions come from the line of John Pancari with Evercore ISI. Please proceed with your questions.
John Pancari: Good morning.
William Demchak: Hey. John.
John Pancari: On the expense front, it looks like within expenses they came in a bit better than expected, maybe on the comp side and certain other areas and you cited the solid expense management and your cost save effort. Is there — did you say that the trends are coming in perhaps a bit better than you had forecasted as you look at your expense phase, and is there any thought process that potentially your full year ’24 outlook could prove conservative in terms of your stable expectation?
Robert Reilly: John, this is Rob. So I’d say, for the full year, we’re still planning and guiding towards stable. In the first quarter, you’re right, we’re off to a good start, in terms of realizing the expense actions that we took last year and CIP program that we have this year. But it’s a little early in the year to roll that all forward. And like I said, we’re off to a good start and we’re well positioned for stable.
John Pancari: Okay. Thanks, Rob. That’s helpful. And then just separately on the credit side, you can see the commercial real estate stress that you mentioned and you prudently added to the office reserve in the quarter, but relatively stable or down a little bit in terms of your firm wide reserve. Are you seeing — could you maybe talk about the progression in credit in other areas? Do you see maybe mounting stress at all in C&I that could keep you — potentially keep the reserve currently stable, or could you continue to, from a firm y perspective bleed the reserve here?
William Demchak: Bleed is a bad word. The credit action at the moment is in the real estate book and specifically inside of office, consumer at the margin a little bit worse, but there isn’t anything systematic going on in C&I that would cause us to have any different expectations of what we see now, and we’re reserved for the moment based on our economic forecast.
Robert Reilly: Yeah. The pressure is in the CRE book, specifically the office book.
John Pancari: Okay. And then just related to that, are you seeing migration in the office book that is surprising, given your forecast on the added, notably to the office reserve, is there anything there that surprised you in terms of your reappraisals or your work on that front?
Robert Reilly: No surprises. Yeah. Everything’s progressing as we expected. We started with the criticized, the NPLs are up a little bit, but everything is consistent with what we’ve been saying.
John Pancari: Got it. All right. Thanks, Rob.
Operator: Thank you. Our next question come from the line of Matt O’Connor with Deutsche Bank. Please proceed with your questions.
Matt O’Connor: Good morning. Looking at Slide 6 here, where you show the runoff of the fixed rate securities and swaps. And any way to size the revenue pickup from this, either anchoring to the forward curve or current rates? You put out some crude analysis that showed about a $2 billion impact and just said it was linear. So half this year, half next, but obviously it’s a rough cut at it. So I don’t know, if you have any comments on that or frame it on using your estimates. Thanks.
Robert Reilly: No, I would say — so we laid it out in the slides in terms of what we see in terms of runoff. And obviously the projected AOCI burned down as it relates to capital, but all of that’s in our guide. So in terms of what our expectations are, in terms of that behavior, that’s in our full year NII guide, which is down 4% to 5%. But it does make the point in terms of what we were saying earlier. And going forward, the biggest variable is the repricing of our fixed rate assets than in this case securities.
William Demchak: Matt, I think what everybody’s struggling with here is this notion of what’s the Fed going to do in the next period of time. Is it new cuts or no cuts or three cuts, and we started out with six cuts.
Robert Reilly: We didn’t.
William Demchak: Yeah. We did not, but the market did. We know based on forward curve the repricing of our fixed rate assets, the amount of money, incremental money we will earn from that has increased because term rates have increased. At the same time, that the assumption that the Fed will maintain rates here longer causes us to pause on what happens to deposit pricing through time, right? So there’s a tradeoff. Higher rates in the long run, obviously help us on our fixed rate assets. Deposit repricing continues on if the Fed holds longer. A much slower pace than it’s been in the past, but I think it’s — it would be a bit of a heroic assumption for anybody to say that deposit cost will continue to creep up in the face of a steady Fed. And so that’s the trade off in the near term. Longer term, the repricing of the fixed rate assets towards the repricing of deposits. And that’s kind of why we say, look, in the second quarter we trough, and then we pick up from there.
Robert Reilly: And then to ’25.
William Demchak: Yeah.
Matt O’Connor: That makes sense. And then, sorry if I missed it earlier, but did you reiterate your view that 2025 net interest income would be record level? And if you did, what would derail that if the higher prolong or doesn’t sound like — doesn’t sound like that’ll change it. Is there still a loan growth component or if rates go down too much, just what would be the risk of achieving that if you still have that view? Thank you.
William Demchak: I mean, the biggest risk would be a massive curve inversion, such that we were repricing fixed rate securities at lower yields than they are today. Well, I mean then what they were three months ago. Our original assumptions in that forecast yields were hundred lower than they are right now. If they were to fall well below that, we would be at risk at that record number, although, still a high number.
Robert Reilly: And Matt, this is Rob. It’s Rob. I’ll take the opportunity to reiterate our view that 2025 will be a record NII.
Matt O’Connor: Okay. Thank you very much.
Operator: Thank you. Our next questions come from the line of Gerard Cassidy with RBC Capital Markets. Please proceed with your questions.
Gerard Cassidy: Hi, Bill. Hi, Rob.
William Demchak: Hey, Gerard.
Robert Reilly: Hey, Gerard.
Gerard Cassidy: Rob, you talked about the utilization of the C&I loans that it was lower in the first quarter and normally it kind of ticks up a bit. Question on that. Is it — do you think your customers are just uncertain about their outlooks, which has kind of helped them back from drawing down on lines of credit, or do you think that they’re having access to other lenders, meaning private credit market or the public markets that has taken away opportunities for banks to have these companies increase those lines of utilization?
William Demchak: Yes. I think it’s both. Yeah. The capital markets activity in the first quarter, we’re not — the private credit side on leverage finance doesn’t really impact us, but the public markets were wide open, by the way, our fees were up in that space for serving clients that way, but naturally at the margin that causes our utilization to go down. The other issue you can’t ignore, right? But we’ve seen capital spend and inventory bill be next to nothing, even though capacity utilization is high, retail sales are high. And at some point that’s got to give. But I do think there continues to be hesitancy on manufacturers in particular, just in the face of this economy, and I think that’s part of it.
Robert Reilly: And looking for a stability factor which will help.
Gerard Cassidy: Very good. And then I know, Rob, I think you touched on, in an answer to a question about the commercial real estate outlook office in particular. And you guys, everything appears to be going in your expectations. What kind of pricing declines in appraisals that have come up and where you’ve had to reappraise certain properties. Are you seeing price declines 10%, 15% 20% on those appraisals or more, any color there?
Robert Reilly: I mean, much higher than that.
Gerard Cassidy: Okay.
William Demchak: Of variance.
Robert Reilly: The variance is all over the place. But as a practical matter, if we were underwritten at the start at $0.50 to $0.55 on whatever the appraised value was at that point in time, a big chunk of the book right now is effectively at par, and we look at resolutions that we’ve gone through. We’ve had everything from we get out whole to we lose $0.75 on the $1 on a given loan.
William Demchak: That’s the variance factor.
Robert Reilly: So, it’s building specific. It’s market specific, that’s driving this. But loss rates are a lot higher. If you looked at office and said, hey, how much of values fall, it’s a lot higher than 15%. Personally across the space, my view is closer to 30 or 40 or even higher.
William Demchak: And you’re thinking ahead. You’re thinking ahead in terms of where we’re going.
