Hello and welcome to the PNC Financial Services Group's 2024 Annual Meeting of Shareholders. Please note that this webcast is being recorded. It is now my pleasure to turn today's meeting over to Bill Demchak, Chairman and Chief Executive Officer of the PNC Financial Services Group.
Thank you and good morning, everyone. On behalf of our Board of Directors and Management team, we are pleased that you have joined us this morning for our 2024 Annual Meeting of Shareholders. As Chairman of the PNC Financial Services Group, I will preside as the Chair of this meeting. To begin, let me provide an overview of how our meeting will proceed. After calling the meeting to order, I will introduce our Director nominees, Executive Committee members, and representatives of our independent auditor, who will be available to address questions. Next, our Corporate Secretary will provide a report on the procedural matters. I will then introduce the formal business of the meeting, including the five items on our agenda. We will then pause for questions regarding those five items and open the polls for voting.
After the polls are closed, our Corporate Secretary will report on the preliminary voting results. Following that, I'll adjourn the meeting and provide remarks on our 2023 business performance. Immediately following that presentation, I will use the remaining time to take general questions submitted by shareholders through our virtual meeting portal. I will now call this meeting to order. The polls are open, and you may vote through the virtual meeting portal at any time before the polls are closed. The polls will close promptly after we introduce and address any questions relating to the proposals to be acted upon at this meeting. If you plan to change, sorry, if you plan to vote or change your vote during the meeting, please do so as soon as possible.
I would like to introduce my fellow Director nominees who joined the meeting today: Joe Alvarado, Debra Cafaro, Marjorie Rodgers Cheshire, Andrew Feldstein, Richard Harshman, Dan Hesse, Renu Khator, Linda Medler, Robert Niblock, Martin Pfinsgraff, and Bryan Salesky. Also on the line are the members of our Executive Management Committee: Carole Brown, Richard Bynum, Louis Cestello, Kieran Fallon, Debbie Guild, Vicky Henn, Greg Jordan, Stacy Juchno, Ganesh Krishnan, Laura Long, Mike Lyons, Alex Overstrom, Bill Parsley, Rob Reilly, Amanda Rosseter, Gagan Singh, and Mike Thomas. Tom Kelly of PricewaterhouseCoopers, our independent auditor, is also on the line. Joining me today on the panel are Greg Jordan, our General Counsel and Chief Administrative Officer; Laura Gleason, our Corporate Secretary; and Bryan Gill, the Director of Investor Relations. This meeting will be conducted in accordance with the Regulations for Conduct, which are available on the virtual meeting portal.
By attending this meeting, you agree to abide by these regulations. Because this is a meeting of our shareholders, only those who entered the meeting as a shareholder using a control number will be permitted to vote and submit questions. Shareholder questions are welcome. To vote or submit questions, please follow the instructions available on the virtual meeting portal. We will only answer questions submitted in writing via the portal and consistent with our Regulations for Conduct. You can submit questions at any time during the meeting. We will now turn to the formalities that are necessary for our record keeping. Laura, will you please present the Secretary's request?
Thank you, Bill. I have in my possession an affidavit from Broadridge Financial Solutions, PNC's distribution and tabulation agent. The affidavit provides that the proxy materials for this meeting were mailed to shareholders commencing on March 13th, 2024, the day we began providing access to our proxy materials. These materials were distributed to shareholders of record as of February 2nd, 2024. Janice W. Castillo, LLC, has been appointed as the Judge of Election for this meeting. The Judge of Election has been furnished with a listing of all shareholders of record. On behalf of Janice W. Castillo, LLC, Janice Castillo is supervising the voting, and she has delivered her oath of office to me. The affidavit, notice, and oaths will be filed with the records of this meeting.
The Judge of Election has certified that at the beginning of this meeting there were present in person via virtual format or by proxy shares of the voting stock entitled to cast 361 million votes, or 91% of the total voting power. Therefore, a quorum is present. Copies of the minutes of the 2023 Annual Meeting of Shareholders are available from me upon request. I would like to remind those attending the meeting that today's presentation contains forward-looking information and non-GAAP financial information. Cautionary statements about reliance on this information are included in today's presentation, which is also available on our corporate website, pnc.com, under Investor Relations, and I urge you to read the cautionary statements regarding such information. This concludes my report.
Thank you, Laura. Based on your report, I confirm that this meeting has been properly convened. The purpose of this meeting is to consider and act upon five proposals. The four management proposals are: first, the election of 12 nominated directors; second, the ratification of the Audit Committee selection of PricewaterhouseCoopers as our independent registered public accounting firm for 2024; third, advisory approval of the compensation of our named executive officers; and fourth, approval of the PNC Financial Services Group 2025 Employee Stock Purchase Plan. I will now ask for a single motion to introduce these proposals. May I have such a motion?
Mr. Chairman, my name is Bryan Gill. I am a shareholder, and I so move.
May I have a second to this motion?
Mr. Chairman, my name is Greg Jordan. I am a shareholder, and I second the motions.
Thank you. I declare that these proposals have been properly introduced and move. The fifth proposal for consideration is a shareholder proposal regarding a report on risk management and implementation of PNC's Human Rights Statement in Financing submitted by Maryknoll Sisters of St. Dominic together with other co-sponsors. If the proponent's representative, Cathy Rowan, Corporate Responsibility Coordinator for Maryknoll Sisters, is available, I would ask the operator to unmute her line so that the proposal can be presented. The proposal is set forth in detail on pages 114-115 of our Proxy Statement. Ms. Rowan, please take a few minutes to present the proposals.
Thank you. Good morning. Can you hear me?
Yes.
Yes? Okay. Great. Good morning, Mr. Demchak, members of the board and fellow shareholders. I'm Cathy Rowan, and on behalf of the Maryknoll Sisters, the co-filers Benedictine Sisters of Mount St. Scholastica, and the Sisters of the Order of St. Benedict Rock Island, I move Proposal 5. As Catholic religious congregations, we are committed to promoting peace, justice, and care of creation through our ministries and investments. Our world struggles to meet urgent human rights challenges posed by the climate crisis and conflicts. There is a clear moral responsibility for PNC and its investors to acknowledge the direct role that financial institutions play in contributing to human rights harms. We were pleased to see PNC publish last year a document on Responsible Lending Practices and its Environmental and Social Risk Management framework.
Our proposal seeks greater transparency about the effectiveness of PNC's frameworks and tools in respecting human rights in its financing decisions. Our proposal comes from a deep concern that PNC is financing clients connected to human rights abuses. Fossil fuels are the main driver of the climate crisis and can be linked to severe human rights harms. PNC continues lending to oil and gas operations that may be connected to environmental racism. For example, our company is one of the top financiers of the Mountain Valley Pipeline, which has faced strong opposition from farmers in West Virginia to Indigenous tribes in North Carolina due to its health risks, water quality concerns, and violations of Indigenous rights. A report published earlier this year from the International Campaign to Abolish Nuclear Weapons finds 287 financial institutions providing substantial financing or having investment relations with 24 companies involved in nuclear weapons production.
The report lists PNC as contributing over $4 billion in loans and underwriting to the nuclear weapons industry. PNC's risk management, screens, and due diligence processes do not explicitly address the risks associated with financing nuclear weapons. Pope Francis said two years ago, "Nuclear weapons are a costly and dangerous liability. They represent a risk multiplier that provides only an illusion of a peace of sorts. I wish to reaffirm that the use of nuclear weapons, as well as their mere possession, is immoral.
Trying to defend and ensure the stability and peace through a false sense of security and a balance of terror sustained by a mentality of fear and mistrust inevitably ends up poisoning relationships between peoples and obstructing any possible form of real dialogue." This proposal is offered as an invitation to examine PNC's business model in the context of its human rights responsibilities, and we believe its adoption will provide investors greater understanding of the effectiveness of PNC's tools and frameworks to mitigate negative human rights impacts. I ask for your support of Proposal 5. Thank you.
Thank you, Ms. Rowan. We will now pause to allow for questions related to these five proposals. Questions unrelated to these proposals will be addressed as appropriate during the general question-and-answer session following the conclusion of the formal business of this meeting. If multiple questions are submitted on the same topic, we will do our best to summarize them and respond collectively to allow us to address as many questions as possible. We'll make every effort to address questions and comments that are consistent with the Regulations for Conduct. We have received several questions submitted through our virtual meeting portal prior to today's meeting, and we'll address those first. As a reminder, for those who intend to vote or change their vote during the meeting, the polls will be closed after the discussion of these proposals has concluded.
Okay. Well, thanks, Bill. Your first question relates to Proposal Number 2. Can you discuss the selection of the independent registered public accounting firm?
Thank you, Bryan. Under the Audit Committee's charter, the committee is responsible for the appointment, compensation, evaluation, retention, and termination of our independent auditor. The committee approves all the audit engagement fees and terms associated with the retention of the independent auditor. Of course, in making its selection of PwC as our independent auditor for 2024, the Audit Committee carefully considered PwC's qualifications and performance, the quality and candor of its communications with the committee and PNC, and its independent subjectivity and professional skepticism. Also, as part of this review, the committee considers material issues, if any, that are raised by any inquiry or investigation by governmental or professional authorities within the preceding five years relating to the independent auditor, the independent audits conducted by the auditor, as well as the steps taken by the auditor to deal with those material issues.
Following this assessment process, the committee presented its conclusions regarding PwC to the board, and the board voted unanimously to recommend that shareholders vote to ratify the committee's selection of PwC for 2024.
Okay. Thank you. Your next question relates to Proposal 3, executive compensation. Can you discuss the CEO pay ratio and why the compensation for you and the other executive officers is set at the current levels?
Sure. But we actually saw a significant decline in our CEO pay ratio for year-end 2023 due substantially to the year-over-year increase in the median employee's annual total compensation. Compensation for myself and the other executive officers is reviewed and approved by our board's Human Resources Committee, so I'm going to ask Andrew Feldstein, our lead independent director, to comment on our executive compensation program. Andrew, if you're there.
Thanks, Bill. I just want to confirm that you can hear me.
Yes.
Great. Well, good morning, everyone. We appreciate the question. In making decisions about executive compensation, the Human Resources Committee relies on some central guiding principles that align management with the interests of our shareholders. We pay for performance. We link compensation to long-term value creation. We discourage excessive risk-taking. And we incorporate market competitors so we attract, motivate, and retain exceptional executives. And to ensure a tight link between pay and performance, we consider financial, operating, and strategic metrics, as well as risk-based measures. With respect to CEO compensation, the committee considered Mr. Demchak's proven ability to build long-term value for all stakeholders and through all phases of the economic cycle.
As we all know, 2023 was a tumultuous year for banks, and his exceptional leadership enabled PNC to perform well through the challenging markets and emerge in a position of strength, well-positioned to achieve our strategic goals and capitalize on new opportunities created by the turmoil. Based on the quality of his performance and his contributions to PNC, the committee believes that the compensation awarded to him, including incentive compensation, is appropriate and well-aligned with shareholders' long-term interests. I'll send it back to you now, Bryan.
Okay. Thanks, Andrew.
Your next question relates to the shareholder proposal that Ms. Rowan just presented. Would you please discuss the board's reasons for recommending that shareholders vote against that proposal?
Sure. The first reason we recommend a vote against the shareholder proposal is that PNC's existing disclosures already satisfy the proponent's request for a report explaining how PNC's risk management systems ensure effective implementation of its Human Rights Statement and existing and proposed general corporate and project financing. This disclosure, by the way, titled "Responsible Lending Practices," is publicly available on PNC's website. In terms of our actual lending practices, we leverage our Environmental and Social Risk Management process, including our industry-agnostic something called a Rapid Risk Screen tool to capture potential risks, including emerging risks. This process may lead to a decision to limit exposure to individual commercial clients with elevated risk profiles or to engage with customers and external stakeholders to try to better understand the potential risks and develop a path forward to mitigate those risks.
The proponents also contend that PNC has violated the law by lending to companies producing controversial weapons, citing something called the Treaty on the Prohibition of Nuclear Weapons as an enforced international law. In fact, the United States, Britain, and France, among many other countries, have rejected that treaty. In other words, the treaty isn't the governing law, and PNC's lending to these large, diversified firms that provide a variety of everyday products and services is not at all illegal. Further, our lending activity to these companies is de minimis relative to our overall portfolio, representing less than 0.1% of our total loan portfolio at the end of 2023.
In the end, we believe that our balanced approach, which monitors the wide spectrum of issues of concern to its stakeholders while upholding fair and consistent lending practices as required by U.S. federal law and state law or, sorry, U.S. federal, state, and local laws, is reasonable and in the best interests of the long-term value of our franchise.
Okay. Well, thank you, Bill. At this time, we have no further questions related to the proposals.
Thanks, Bryan. All proposals are now formally before the meeting, and the polls will close shortly. Again, if you intend to vote or change your vote, please do so now. Shareholders who have sent in proxies or voted by phone or internet do not need to take any further action. Shareholders who have not voted or wish to change their vote may do so now through the virtual meeting portal. We will pause briefly here and allow any final votes to be cast. At this time, I declare the polls to be closed, and I'd like to call upon the corporate secretary to report the preliminary voting results.
Thank you, Bill. The judge of election has provided a preliminary report to me, which certifies that a majority of the votes cast were for the election of all 12 director nominees, for the ratification of the selection of PricewaterhouseCoopers as PNC's independent registered public accounting firm for 2024, for the advisory approval of the compensation of PNC's named executive officers, for approval of the PNC Financial Services Group 2025 Employee Stock Purchase Plan, and against the shareholder proposal regarding a report on risk management and implementation of PNC's Human Rights Statement and financing. I will file the preliminary report with the records of this meeting, and the final vote tally will be disclosed on a Form 8-K that PNC will file with the SEC.
Thank you, Laura. Subject to the certification of the final voting results by the judge of election, I declare that the four management proposals have been approved. The shareholder proposal has not been approved, and this concludes the formal business of the meeting. I declare the annual meeting to be adjourned. Now, just before we begin the general question-and-answer session, I'd like to share some of our highlights from 2023 and a few perspectives on the future. In many ways, 2023 was a challenging year for banking, and I want to start by thanking PNC's employees for everything that they did to help us deliver strong results and show up for our customers, importantly for each other and for our communities. I'd also like to thank our board of directors for their steady guidance throughout the year.
Of course, I'd like to thank you, our shareholders, for your continued trust in our company. Against this challenging backdrop in 2023, we grew and deepened customer relationships and generated record revenue. At the same time, we achieved positive operating leverage on an adjusted basis by carefully controlling our expenses. On the bottom line, we delivered net income of $5.6 billion, which translates to $12.79 per diluted share or $14.10 per diluted share on an adjusted basis. Over the course of the year, we grew average loans 5%, and our credit quality metrics remained strong during 2023, reflecting the thoughtful, conservative approach to credit, which has historically served us well in challenging environments. In good times and bad, we strive to be reliable and predictable for our customers and for our shareholders.
In fact, just last month, and hopefully you've all seen this, we launched a new brand campaign called Brilliantly Boring, in which we celebrate the steady, responsible way that we run our company. Clearly, we're using some humor here to stand out in a crowded market and introduce ourselves to more people across the country. But inside of that humor is truth about who we are, how we think about risk, and what distinguishes us from other banks out there. The work that we do isn't particularly flashy or edgy. It's consistent and dependable. It's showing up every single day to help our clients move forward, delivering value for all of our stakeholders. As we look to the future, we have an incredible set of opportunities in front of us, opportunities to expand our reach, serve more customers, and gain market share.
I'm optimistic for what is to come, and I want to thank you all again for your support of our company. I will now pause here to allow for questions from our shareholders in the remaining time allocated for this meeting, and I'll respond personally or designate another person as appropriate to respond to questions we receive that are appropriate for discussion. As a reminder, as multiple questions are submitted on the same topic, we will summarize them and respond collectively. I will make every effort to address questions or comments that are consistent with the Regulations for Conduct. We will not respond to questions that were already addressed in today's presentation. If you have a question about a matter of concern to you individually and not really of general concern to our shareholders, please contact our investor relations team through our website at pnc.com.
We've allocated an hour for the meeting, including all questions, so we'll address as many questions as possible within that time frame. We have received questions submitted through our virtual meeting portal prior to today's meeting, and we'll address those first.
Okay, Bill. Your first question is, how do we as shareholders benefit from advertising within sports stadiums and the sponsorship of IndyCar Racing?
Thanks, Bryan. The investments we do in sponsorships is just one lever in our broader strategy to grow brand awareness, particularly on a national level, which is incredibly important to us as we try to introduce our company on a broader scale. This, in turn, drives greater efficiency in our marketing spend, and we attract new clients into the PNC portfolio of products and services. And of course, we continuously evaluate the return that we're getting on sponsorships in terms of client activity. But thank you for the question.
Okay. Your next question is, is PNC working on quantum computing?
That's a new one. In fact, we are, I'll use the term, studying quantum computing and the potential impact it's going to have on the banking industry and the safety and soundness of some of the current encryption methods that we use to keep our customers safe. So it's not something that is live and happening today, but as we all see with the advances in the speed of compute, that quantum computing down the road could have a material impact on how we think about safety and soundness of customer information. We're actively involved in those dialogues and the study of how we would respond to that.
Okay. Thank you, Bill. Your next question is, are you planning on reopening any of the PNC Bank branches in Warren, Ohio? The customer said we would like to welcome more available. We'd like them to become more available. We no longer have much needed PNC Bank branches here to utilize.
I appreciate the question. I don't know the particular situation in Warren, Ohio, but I will actually look into that. I mean, as a practical matter, we try to put our branches where our current customers and our potential customers want to use them. Over time, we've seen broad-based traffic and bank branches decline as people move to our digital channels, and we have closed certain branches as we've opened others. We've also introduced mobile branches to reach communities that are at risk of being banking deserts. But I don't know the particular situation of Warren. I appreciate the question, and I'll take a look at it.
Okay. Your next question. Does PNC senior management and the board support a minimum $20 wage for employees with at least five years of experience?
I'm not sure if that's a policy question in terms of minimum wage for the country or if that's a PNC-specific question. But through time, we've obviously increased our starting salary. So the day you come in the door, including from high school, if they hire you from one of our Partner Up programs, I think we start at $18, and we move pretty quickly beyond the $20, certainly within the five-year period. As a practical matter, I think some of the strength that we see in the U.S. economy now is driven by this natural drive for higher wages at the lower level. So whether it's a political policy or not, in practical terms, the minimum wage in the U.S. has approached $20 just because of the tightness of the labor market. And I actually think that is a good thing for our country.
Okay. Well, thank you, Bill. We have no further questions.