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Balance Sheet Strength Aids PNC Financial (PNC), High Costs Ail
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The PNC Financial Services Group, Inc.’s (PNC - Free Report) strategic initiatives, solid balance sheet position and net interest income growth (NII) are expected to keep supporting its financials. Also, its sustainable capital distributions seem positive. However, an elevated cost base and commercial loan concentration are concerning.
PNC Financial benefits from a strong balance sheet position with loan and deposit balances rising over the years. In October 2023, the company acquired loan commitments from Signature Bank worth approximately $16 billion. The growing loan balances and a well-diversified deposit base are likely to support its financials in the upcoming period.
PNC expects period-end loan balances to rise 3-4% in 2024. Our model estimates total loans and deposit balances to witness a CAGR of 3.5% and 1.1%, respectively, over the next three years (until 2026).
High-interest rates have been supporting PNC Financial’s NII growth over the years. However, aggressive rate hikes by the Federal Reserve led to a rise in funding costs, which weighed on NII.
As the Federal Reserve has signaled approximately three interest rate cuts by 2024-end, management is expecting the metric to decline in the first half of 2024. Nonetheless, the company expects improvement in the metric going forward. Growing loan balances will aid NII growth in the long term. Though we anticipate NII to decline 5% in the current year, it will rebound and rise 1.8% and 3.7% in 2025 and 2026, respectively.
PNC Financial remains committed to strengthening its business through strategic initiatives. In February 2024, it announced its plans to invest approximately $1 billion to open more than 100 branches and renovate more than 1,200 existing locations by 2028. Such efforts will bolster its presence in key locations as well as augment its retail banking business.
PNC Financial continues to progress with its capital distribution strategy. In July 2023, the company sequentially hiked quarterly cash dividends on common stock by 3.3% to $1.55 per share. Also, a 100 million share repurchase plan was authorized in second-quarter 2022. Of this, nearly 45% was available for repurchase as of Dec 31, 2023. Sustainable capital distributions are likely to stoke investors’ confidence in the stock.
However, PNC’s non-interest expenses have witnessed a four-year CAGR (2019-2023) of 7.3% majorly due to a rise in personnel and equipment expenditure. Though management expects adjusted non-interest expenses to decline 3-4% sequentially in first-quarter 2024 given its cost-containment efforts, a rising expense base on investments in technological advancements is likely to affect the bottom line. We estimate the metric record a three-year CAGR of 2.8%, ending in 2026.
The majority of PNC Financial’s loan portfolio, around 68.6% of average loans as of Dec 31, 2023, comprises commercial loans. The current rapidly changing macroeconomic backdrop is likely to put some strain on commercial lending. Moreover, in case of any economic downturn, the asset quality of these credit categories is anticipated to deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Shares of this Zacks Rank #3 (Hold) company have lost 4.3% against the industry’s 7.1% growth over the past year.
JPM’s earnings estimate for 2024 has moved marginally upward over the past 30 days. In the past three months, its shares have risen 17%.
The Zacks Consensus Estimate for PRK’s current-year earnings has moved north 4.9% over the past 30 days. Its shares have risen 16.5% in the past three months.
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Balance Sheet Strength Aids PNC Financial (PNC), High Costs Ail
The PNC Financial Services Group, Inc.’s (PNC - Free Report) strategic initiatives, solid balance sheet position and net interest income growth (NII) are expected to keep supporting its financials. Also, its sustainable capital distributions seem positive. However, an elevated cost base and commercial loan concentration are concerning.
PNC Financial benefits from a strong balance sheet position with loan and deposit balances rising over the years. In October 2023, the company acquired loan commitments from Signature Bank worth approximately $16 billion. The growing loan balances and a well-diversified deposit base are likely to support its financials in the upcoming period.
PNC expects period-end loan balances to rise 3-4% in 2024. Our model estimates total loans and deposit balances to witness a CAGR of 3.5% and 1.1%, respectively, over the next three years (until 2026).
High-interest rates have been supporting PNC Financial’s NII growth over the years. However, aggressive rate hikes by the Federal Reserve led to a rise in funding costs, which weighed on NII.
As the Federal Reserve has signaled approximately three interest rate cuts by 2024-end, management is expecting the metric to decline in the first half of 2024. Nonetheless, the company expects improvement in the metric going forward. Growing loan balances will aid NII growth in the long term. Though we anticipate NII to decline 5% in the current year, it will rebound and rise 1.8% and 3.7% in 2025 and 2026, respectively.
PNC Financial remains committed to strengthening its business through strategic initiatives. In February 2024, it announced its plans to invest approximately $1 billion to open more than 100 branches and renovate more than 1,200 existing locations by 2028. Such efforts will bolster its presence in key locations as well as augment its retail banking business.
PNC Financial continues to progress with its capital distribution strategy. In July 2023, the company sequentially hiked quarterly cash dividends on common stock by 3.3% to $1.55 per share. Also, a 100 million share repurchase plan was authorized in second-quarter 2022. Of this, nearly 45% was available for repurchase as of Dec 31, 2023. Sustainable capital distributions are likely to stoke investors’ confidence in the stock.
However, PNC’s non-interest expenses have witnessed a four-year CAGR (2019-2023) of 7.3% majorly due to a rise in personnel and equipment expenditure. Though management expects adjusted non-interest expenses to decline 3-4% sequentially in first-quarter 2024 given its cost-containment efforts, a rising expense base on investments in technological advancements is likely to affect the bottom line. We estimate the metric record a three-year CAGR of 2.8%, ending in 2026.
The majority of PNC Financial’s loan portfolio, around 68.6% of average loans as of Dec 31, 2023, comprises commercial loans. The current rapidly changing macroeconomic backdrop is likely to put some strain on commercial lending. Moreover, in case of any economic downturn, the asset quality of these credit categories is anticipated to deteriorate. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
Shares of this Zacks Rank #3 (Hold) company have lost 4.3% against the industry’s 7.1% growth over the past year.
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Finance Stocks Worth Considering
A couple of better-ranked stocks from the banking space are JPMorgan Chase & Co. (JPM - Free Report) and Park National Corporation (PRK - Free Report) . JPM currently carries a Zacks Rank #2 (Buy), while PRK sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
JPM’s earnings estimate for 2024 has moved marginally upward over the past 30 days. In the past three months, its shares have risen 17%.
The Zacks Consensus Estimate for PRK’s current-year earnings has moved north 4.9% over the past 30 days. Its shares have risen 16.5% in the past three months.