PNC Earnings: Expenses Are Well-Managed; Net Interest Income Will Worsen Before Seeing Improvement

Key Morningstar Metrics for PNC Financial Services

• Fair Value Estimate: $175.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of PNC Financial Services’ Earnings

PNC Financial Services PNC reported decent results in the first quarter. Earnings came in at $3.10 per share, compared with FactSet’s consensus estimate of $3.01. The results included an incremental $130 million special assessment charge related to the FDIC increasing its estimated loss from the March 2023 banking events. We do not anticipate a significant change to our $175 per share fair value estimate as we incorporate first-quarter results.

First-quarter net interest income, or NII, was reported at $3.26 billion. This was down 4% from last quarter and 9% from the prior-year quarter. PNC’s net interest margin ticked down 9 basis points to 2.57% from the prior quarter as deposit costs continued to rise, albeit at a much slower pace than the hiking phase of the interest-rate cycle.

PNC will reap the benefits of repricing many fixed-rate long-duration securities currently stuck on its balance sheet that are earning low yields. This will raise NII quarter over quarter after it bottoms out in the second quarter. Management emphasized that this dynamic will play out irrespective of the speed of interest rate cuts, given the firm’s balance sheet’s neutral positioning to short-term interest rates.

We like that PNC is tracking well on its full-year core expense guidance for stable year-over-year growth. Management’s expense guidance includes one-time charges, management cost-saving initiatives, and the multiyear $1 billion investment for branch openings and renovations. Fee income came in a little lower than consensus expectations, and there is still a lot of room for growth to meet full-year guidance, including management’s expectation of a 20% rebound in capital-markets income. Although fee income growth remained muted this quarter, we hope to see improvements in the upcoming quarters.