PNC's Quarterly Profit Likely To Rise on Strength of Higher Interest Margin

Firm's shares still reflect concerns in broader banking sector

A PNC Bank branch building

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Expanding margins between interest earned on loans and rates paid to depositors likely drove an increase in first-quarter net income for PNC Financial Services Group (PNC), the nation's sixth-largest bank.

Key Takeaways

  • PNC Financial is expected to report earnings per share of $3.66, up 13% from the same quarter last year.
  • Net interest margin likely remained at 2.92%, a four-year record reached in the final quarter of 2022.
  • The bank's limited commercial real estate exposure could be a plus as falling property values and rising defaults cast a shadow over the industry.

PNC, scheduled to report its latest quarterly results Friday, likely earned $1.6 billion, or $3.66 per share in the period, according to estimates from Visible Alpha.

That would represent a 9.8% increase from the same period a year ago. Revenue, net of interest expense, likely increased 19% to $5.6 billion from $4.7 billion in last year's first quarter.

The results will likely reflect the impact rising interest rates have had on the loan portfolios of most banks. PNC's net interest income probably increased 28.7% to $3.6 billion from the same period a year ago.

Net interest margin is expected to remain at 2.92%, a four-year high achieved last quarter and up from 2.28% in last year's first quarter.

Non-interest income, ranging from asset management fees to brokerage and investment banking revenue, likely gained 4.7% to $2 billion.

PNC Financial Key Stats
   Q1 2023 (est)  Q1 2022  Q1 2021
 Adjusted EPS ($)  3.66  3.23  4.10
 Net interest income ($B)  3.6  2.8  2.4
 Net interest margin (%)  2.92  2.28  2.27

Source: Visible Alpha

Tumultuous Times

U.S. banks endured a tumultuous first quarter. Bank stocks plunged in March amid worries about substantial unrealized balance sheet losses, particularly at regional and mid-sized banks.

Meanwhile, commercial loan portfolios also have come under scrutiny as property values fall in certain commercial real estate sectors, particularly office buildings.

PNC, however, has a relatively diversified loan portfolio. Overall, commercial loans account for about 70% of the bank's lending, but real estate loans only make up 16% of its total outstanding commercial loans.

Mirroring a trend throughout the banking sector, PNC's deposits are forecast to fall 3.8% from the same quarter last year to $433 million. That would mark the fifth straight quarter in which deposits have decreased.

Still, the company's expected loan-to-deposit ratio of 75.3%, compared with 64.1% in the same period a year ago, would mark a fifth straight quarterly increase.

Sequentially from the fourth quarter, the firm is expected to increase its reserves for potential loan losses by five basis points to 1.5% of its total portfolio, which is expected to rise 11% to $327 billion from the first quarter a year ago. At that time, loss reserves equaled a slightly higher 1.55% of total loans.

Nevertheless, PNC's shares plunged along with the broader banking sector during the quarter. They fell 18.8% during the first quarter, slightly worse than the 17.9% decline in the period by the S&P Banks Select Industry Index.

Total return of PNC Financial Services Group stock, the S&P 500, and the S&P Banks Select Industry Sector between Dec. 31, 2022 and April 12, 2023.
Article Sources
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  1. Federal Reserve Board. "Large Commercial Banks."

  2. Visible Alpha. "Financial Data."

  3. The Wall Street Journal. "Commercial Property Debt Creates More Bank Worries."

  4. S&P Dow Jones Indices. "S&P Banks Select Industry Index."

  5. Yahoo! Finance. "PNC Financial Services Group Inc."

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