PNC Profit Seen Rising With Rates

The sixth-largest US bank's loan trends and credit reserves will also be in focus when it reports Q4 results early Wednesday

PNC Bank sign

Key Takeaways

  • PNC Financial Services Group is expected to post fourth-quarter earnings of $3.95 per share early Wednesday, up 38% from a year earlier.
  • That would mark the fifth straight sequential increase amid rising rates, which have boosted banks' net interest margin.
  • Credit trends are a concern after Goldman Sachs flagged "early signs of consumer credit deterioration" following disappointing results Tuesday.
  • PNC prepared investors for a slowdown in loan demand in October, when it issued a lackluster fourth-quarter revenue forecast.

PNC Financial Services Group (PNC) is expected to post higher earnings per share for the fifth straight quarter early Wednesday, as the nation's sixth-largest commercial bank takes advantage of higher interest rates.

Fourth-quarter earnings should rise 38% year-over-year to $3.95 per share, based on analyst estimates compiled by Visible Alpha. Net interest margin, the spread between a bank's lending rates and its deposit costs, is expected to rise to nearly 3% from 2.27% a year earlier in the wake of rapid rate hikes by the Federal Reserve.

Downside risks include a steeper slowdown in lending than PNC assumed in its fourth-quarter outlook three months ago, as well as additional credit loss reserves based on the bank's economic forecasts.

On the conference call following its third-quarter results in October, PNC CEO Bill Demchak said "we have not seen any meaningful deterioration in credit quality taking place." Wall Street will want to know whether that remains the case after Goldman Sachs CFO Denis Coleman noted "early signs of consumer credit deterioration" on the conference call following Goldman's disappointing results Tuesday.

Credit card payment delinquencies have recently risen at the fastest pace since 2008, Morgan Stanley banking analyst Betsy Grasek said in a Jan. 6 research note. An economic slowdown capping interest rates could erode banks' recent net interest margin gains, Deutsche Bank's Matt O'Connor said on Jan. 5. While bank stocks as a group are headed for new lows, Deutsche Bank said, the analyst upgraded PNC shares to Buy from Hold with a reduced $190 price target, citing strong credit underwriting, capital allocation, and cost controls. In contrast, UBS downgraded PNC to Hold from Buy and cut its share price target to $176 from $190 on Jan. 10.

A point of interest specific to PNC investors will be the bank's progress in the new markets it entered in 2021 after acquiring the U.S. assets of Spanish bank BBVA for $11.6 billion. The deal, which PNC financed by selling its $17 billion stake in BlackRock (BLK), gave the Pittsburgh-based bank a presence in fast-growing Sunbelt states like Texas, Florida, and Arizona, as well as California.

PNC shares have produced a loss of nearly 23% over the past year including dividends, versus a 13% decline for the S&P 500 index (see chart below). The KBW Nasdaq Bank Index has dropped 27% over the past year.

1-Year Total Return for PNC and S&P 500

1-Year Total Return for PNC and S&P 500
Source: TradingView.

PNC Key Stats

  Estimate for
Q4 FY 2022
Q4 FY 2021 Q4 FY 2020
Earnings Per Share ($) 3.95 2.86 3.26
Revenue Net of
Interest Expense ($B)
5.7 5.1 4.2
Net Interest Margin (%) 2.99 2.27 2.32

Source: Visible Alpha

The Key Metric

PNC defines its net interest margin as "the total yield on interest-earning assets minus the total rate on interest-bearing liabilities," and notes it includes the benefit from deposits that don't pay interest. Yields from tax-exempt assets are adjusted on a taxable-equivalent basis to make them comparable.

Net interest margin represents the profit margin a bank earns on its loans over the cost of the deposits financing the lending. For the third quarter of fiscal 2022, PNC reported a net interest margin of 2.82%, up from 2.5% in the second quarter and 2.27% a year earlier. Third-quarter net interest margin increased "primarily due to higher yields on interest-earning assets," PNC said.

Article Sources
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  2. Seeking Alpha. "The PNC Financial Services Group, Inc. (PNC) Q3 2022 Earnings Call Transcript."

  3. CNBC. "Goldman Sachs Posts Its Worst Earnings Miss in a Decade as Revenue Falls While Expenses Rise."

  4. CNBC. "Here’s What Bank Stock Investors Need to Know Ahead of Fourth-Quarter Earnings."

  5. Yahoo Finance. "Analyst Says 'Don't Buy The Big Banks,' Deutsche Bank Cuts Rating."

  6. MarketScreener. "UBS Downgrades PNC Financial Services Group to Neutral From Buy, Adjusts Price Target to $176 From $190."

  7. Banking Dive. "PNC Agrees to Buy BBVA’s US Arm for $11.6B."

  8. PNC. "PNC Q3 2022 Financial Highlights Narrative News Release," Page 14.

  9. PNC. "PNC Q3 2022 Financial Highlights Narrative News Release," Page 2.

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