PNC Earnings: Fee Income Comes in Strong, but Loan Growth Remains Tepid

Key Morningstar Metrics for PNC Financial Services Group

• Fair Value Estimate: $175.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of PNC Financial Services Group’s Earnings

PNC Financial Services Group PNC reported third-quarter earnings per share of $3.49, 3% lower than the $3.60 in the year-ago quarter. Loan growth remained tepid, as loan balances were flattish both sequentially and on a year-over-year basis. We expect loan demand to pick up in the upcoming quarters as rates decline. The bank reported that its C&I credit line utilization was 50.7% in the third quarter, compared with a historical average of 55.0%. We don’t expect to change our fair value estimate of $175 per share as we incorporate the third-quarter results.

Net interest income improved 3% from the prior quarter, a further sign it has bottomed out. Management expects NII to be up approximately 1% in the fourth quarter. NII will benefit from the maturation of the long-duration low-yielding securities stuck on the bank’s balance sheet, but most of it would be offset by the impact of declining rates, given the bank’s asset sensitivity. The deposit mix shift into non-interest-bearing deposits has stabilized, and we expect the rate paid on interest-bearing deposits to peak in 2024, with deposit costs starting to decline in 2025.

The sharp growth in capital market fees drove fee income up 11% year over year. Asset management and brokerage income also showed 5% sequential growth from strong equity market performance. PNC has progressed toward its expense savings goal during the year. We maintain our expense forecast for the year, and we believe the bank is on track to decrease core expenses by 1% through the full year. We think PNC should have higher expense growth within the next few years as it continues to invest in strengthening its consumer lending offerings and positions itself for better loan growth opportunities.