We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
The PNC Financial Services Group, Inc. (PNC - Free Report) remains well-poised for growth on the back of balance sheet strength and strategic growth initiatives. Furthermore, the recent rate cut by the Federal Reserve is expected to bolster its net interest income (NII) growth. However, a mounting expense base and concentrated loan portfolio remain woes.
Key Growth Drivers for PNC
Balance Sheet Strength: PNC Financial benefits from a strong balance sheet position. Total deposits and loans have witnessed a four-year (2019-2023) CAGR of 9.9% and 7.6%, respectively. Although the loan balance declined in the first nine months of 2024, the deposit balance growth continued in the same period. Capitalizing on growth opportunities, in October 2023, the company acquired loan commitments from Signature Bank worth approximately $16 billion. This is expected to support loan growth in the upcoming quarters. Also, management expects the Federal Reserve's actions to lower interest rates, and the expectation of further rate cuts in 2024 is likely to influence the loan demand positively in the upcoming period.
Fed’s Rate Cut to Aid NII: The bank’s NII has witnessed a four-year (ended 2023) CAGR of 8.7%. The metric declined in the first nine months of 2024 due to higher funding costs. Nonetheless, repricing of fixed-rate assets and loan growth is expected to support spread income in 2025.
Additionally, NII is projected to improve in the upcoming period following the Federal Reserve’s rate cut, as funding costs are likely to stabilize over time. The company expects to witness record NII in 2025.
Strategic Growth Initiatives: PNC Financial remains committed to strengthening its business through strategic initiatives and partnerships. In September 2024, the bank partnered with Plaid through a bilateral data access agreement, allowing PNC customers across the United States to securely share their financial data with various financial applications. In May 2024, the bank extended its partnership with TCW Group to offer private credit solutions to middle-market companies. It aims to raise $2.5 billion in investor equity capital for investment in its first year. This partnership will allow the bank to gain a significant share of the expanding private credit market.
PNC Financial is set to expand its branch network across the United States. In February 2024, the company announced its plans to invest approximately $1 billion to enhance its coast-to-coast branch network by opening more than 100 new locations in key cities, such as Austin, Dallas, Denver, Houston, Miami and San Antonio. Additionally, the bank aims to renovate more than 1,200 existing branches to strengthen its presence in current markets. With the addition of these new branches, PNC Financial will solidify its position as one of the largest retail banks in the United States.
Impressive Capital Distribution: PNC Financial continues to progress with its capital distribution strategy. In July 2024, the company sequentially hiked quarterly cash dividends on common stock by 3.2% to $1.60 per share. Apart from regular dividend hikes, the company also has a share repurchase program in place. A 100 million share repurchase plan was authorized in the second quarter of 2022. In the first nine months of 2024, the company repurchased around 0.3 billion of its common shares under its share repurchase program. As of Sept. 30, 2024, approximately 42.6 million shares were available for repurchase under the authorization.
Challenges for PNC
Elevated Expense Base: The company’s non-interest expenses have witnessed a four-year (2019-2023) CAGR of 7.3%. The non-interest expenses increased in the first nine months of 2024 compared with the same period in 2023.
The company has undertaken cost-containment measures targeting a total cost reduction of $750 million in 2024 through a Continuous Improvement Program and workforce reduction. However, the bank’s rising expense base due to technological advancement is likely to continue affecting the bottom line in the long term.
Concentrated Loan Portfolio: The majority of PNC Financial’s loan portfolio, around 66.5% of total loans, comprises commercial loans (commercial and industrial and commercial real estate) as of Sept. 30, 2024. The current rapidly changing macroeconomic backdrop is putting strain on commercial lending.
Also, lower occupancy and comparatively high interest rates affect the credit quality of the company’s office real estate loans. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
PNC’s Price Performance & Zacks Rank
Over the past six months, shares of PNC Financial have gained 23.1% compared with the industry’s growth of 19.8%.
Image: Bigstock
Strategic Expansion Supports PNC Financial Amid Higher Expenses
The PNC Financial Services Group, Inc. (PNC - Free Report) remains well-poised for growth on the back of balance sheet strength and strategic growth initiatives. Furthermore, the recent rate cut by the Federal Reserve is expected to bolster its net interest income (NII) growth. However, a mounting expense base and concentrated loan portfolio remain woes.
Key Growth Drivers for PNC
Balance Sheet Strength: PNC Financial benefits from a strong balance sheet position. Total deposits and loans have witnessed a four-year (2019-2023) CAGR of 9.9% and 7.6%, respectively. Although the loan balance declined in the first nine months of 2024, the deposit balance growth continued in the same period. Capitalizing on growth opportunities, in October 2023, the company acquired loan commitments from Signature Bank worth approximately $16 billion. This is expected to support loan growth in the upcoming quarters. Also, management expects the Federal Reserve's actions to lower interest rates, and the expectation of further rate cuts in 2024 is likely to influence the loan demand positively in the upcoming period.
Fed’s Rate Cut to Aid NII: The bank’s NII has witnessed a four-year (ended 2023) CAGR of 8.7%. The metric declined in the first nine months of 2024 due to higher funding costs. Nonetheless, repricing of fixed-rate assets and loan growth is expected to support spread income in 2025.
Additionally, NII is projected to improve in the upcoming period following the Federal Reserve’s rate cut, as funding costs are likely to stabilize over time. The company expects to witness record NII in 2025.
Strategic Growth Initiatives: PNC Financial remains committed to strengthening its business through strategic initiatives and partnerships.
In September 2024, the bank partnered with Plaid through a bilateral data access agreement, allowing PNC customers across the United States to securely share their financial data with various financial applications. In May 2024, the bank extended its partnership with TCW Group to offer private credit solutions to middle-market companies. It aims to raise $2.5 billion in investor equity capital for investment in its first year. This partnership will allow the bank to gain a significant share of the expanding private credit market.
PNC Financial is set to expand its branch network across the United States. In February 2024, the company announced its plans to invest approximately $1 billion to enhance its coast-to-coast branch network by opening more than 100 new locations in key cities, such as Austin, Dallas, Denver, Houston, Miami and San Antonio. Additionally, the bank aims to renovate more than 1,200 existing branches to strengthen its presence in current markets.
With the addition of these new branches, PNC Financial will solidify its position as one of the largest retail banks in the United States.
Impressive Capital Distribution: PNC Financial continues to progress with its capital distribution strategy. In July 2024, the company sequentially hiked quarterly cash dividends on common stock by 3.2% to $1.60 per share.
Apart from regular dividend hikes, the company also has a share repurchase program in place. A 100 million share repurchase plan was authorized in the second quarter of 2022. In the first nine months of 2024, the company repurchased around 0.3 billion of its common shares under its share repurchase program. As of Sept. 30, 2024, approximately 42.6 million shares were available for repurchase under the authorization.
Challenges for PNC
Elevated Expense Base: The company’s non-interest expenses have witnessed a four-year (2019-2023) CAGR of 7.3%. The non-interest expenses increased in the first nine months of 2024 compared with the same period in 2023.
The company has undertaken cost-containment measures targeting a total cost reduction of $750 million in 2024 through a Continuous Improvement Program and workforce reduction. However, the bank’s rising expense base due to technological advancement is likely to continue affecting the bottom line in the long term.
Concentrated Loan Portfolio: The majority of PNC Financial’s loan portfolio, around 66.5% of total loans, comprises commercial loans (commercial and industrial and commercial real estate) as of Sept. 30, 2024. The current rapidly changing macroeconomic backdrop is putting strain on commercial lending.
Also, lower occupancy and comparatively high interest rates affect the credit quality of the company’s office real estate loans. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
PNC’s Price Performance & Zacks Rank
Over the past six months, shares of PNC Financial have gained 23.1% compared with the industry’s growth of 19.8%.
Currently, PNC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC’s Peers Worth Considering
Some peer stocks from the banking space are The Bank of New York Mellon (BK - Free Report) and Northern Trust Corporation (NTRS - Free Report) .
The Zacks Consensus Estimate for BK’s 2024 earnings has moved 2.5% north over the past 30 days. In the past six months, shares of BK have risen 34.2%.
The Zacks Consensus Estimate for NTRS’ 2024 earnings has moved upward 6.8% over the past 30 days. Its shares have risen 21.9% in the past six months.