Yahoo Finance Loan Growth Aids PNC Financial (PNC) Despite Higher Costs
The PNC Financial Services Group, Inc. PNC enjoys solid loan and deposit balances, which are expected to keep supporting financials. The company’s inorganic expansion strategies have diversified the business mix. However, elevated expenses and declining net-interest income (NII) are major headwinds. Also, PNC’s exposure to commercial loans is worrisome.
PNC Financial’s total loans and deposits have witnessed a four-year (2018-2022) compound annual growth rate (CAGR) of 9.6% and 13%, respectively. The rising trend continued sequentially in first-quarter 2023. With decent pipelines, PNC is well-poised for loan balance growth in 2023. It expects loans to rise 1-3% in 2023.
The company has been active with inorganic growth moves. In September 2022, it closed the buyout of Linga, a POS and payment solutions firm, in a bid to expand corporate payment capabilities in the hospitality and restaurant industry space.
The acquisition of BBVA USA customers and employees to PNC Financial's network and platforms, which was completed in June 2021, boosted its foothold as a commercial bank in all top 30 markets of the United States. Thus, the bottom line is likely to get further support if it continues to make planned investments and diversify its business mix.
PNC’s capital deployment strategy is also encouraging. In the first quarter of 2023, it returned $1 billion of capital to shareholders, comprising $0.6 billion of dividends and repurchase of common shares worth $0.4 billion.
Available cash balance at first-quarter 2023 end was $5.9 billion, while times interest earned ratio was 5.2. Hence with ample liquidity and earnings strength, its capital deployment activities seem sustainable and might stoke investors’ confidence in the stock in the upcoming period.
In the past five years (ended 2022), the company’s NII has witnessed a CAGR of 7.6% on account of aggressive rate hikes by Federal Reserve. Going forward, higher funding costs are expected to affect NII. Such a decline in NII may impede PNC’s top-line growth. Management expects the metric to decline 2-4% sequentially in second-quarter 2023.
PNC Financial’s non-interest expenses have witnessed a four-year CAGR (2018-2022) of 6.3%. The rising trend continued in first-quarter 2023. An increasing expense base on accelerated investment spend on technology is likely to continue affecting the bottom line in the near term.
The majority of PNC Financial’s loan portfolio, nearly 69% as of Mar 31, comprises total commercial loans. Such a lack of diversification in the loan portfolio can be risky for PNC.
Shares of this Zacks Rank #3 (Hold) company have plunged 30.7% compared with a 18.2% decline recorded by the industry over the past year.
Image Source: Zacks Investment Research
Stocks Worth a Look
A couple of better-ranked stocks from the finance space are JPMorgan Chase & Co. JPM and Pathward Financial Inc. CASH, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
JPMorgan’s 2023 earnings estimates have been revised 12.4% upward over the past 30 days. JPM’s shares have moved up 1.8% over the past six months.
The consensus estimate for CASH’s 2023 earnings has been revised 1.8% upward over the past 30 days. Over the past six months, CASH’s share price has increased 0.6%.
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