Is PNC Bank Financially Stable?

PNC Financial Services (NYSE:PNC) is one of the largest and most diversified financial institutions, providing various banking and financial services to its broad swath of clients.

To give an indication of its mammoth size, consolidated total assets, deposits, and shareholders’ equity at the end of the last year were $561.6 billion, $421.4 billion, and $51.1 billion, respectively.

Amid a backdrop of failing banking juggernauts in recent years, with Silicon Valley Bank the most notable candidate, what does the future look like for PNC and can shareholders trust that it will be able to ride out economic storms?

Is PNC Bank Financially Stable?

PNC Bank appears to be financially stable with a solid capital base, as evidenced by a Common Equity Tier 1 ratio of 10.1% as of the latest quarter.

The CET1 ratio measures a bank’s core capital relative to its risk-weighted assets and is a crucial metric in determining financial health.

Generally, a CET1 ratio above 9.5% is generally considered healthy, and PNC’s ratio well exceeds this threshold, which suggests that shareholders can be confident the bank is well-capitalized and able to withstand financial shocks.

Another reason to believe in its anti-fragility is that PNC management has reported a track record of steady earnings results. In its most recent earnings report for Q2 2024, the leadership team reported to the investor community a net income of $1.68 billion, or $3.47 per diluted share, beating analysts’ expectations.

Revenue growth has largely been attributed to higher net interest income, which rose 12% year-over-year to $3.8 billion while the growth in net interest income has been a function of rising interest rates and the bank’s asset-liability management strategies.

Another key metric is return on equity, a measure of profitability relative to shareholders’ equity, and for PNC that stands now at approximately 11.5%. That’s a good number, particularly in a challenging economic environment, and so shareholders can infer that PNC is generating healthy profits from its equity base.

A further measure of stability is the asset quality and loan portfolio evident. As of Q2 2024, the bank’s non-performing assets ratio was 0.23%, down from 0.28% in the same period last year. Such a low level of non-performing loans is a strong indicator that PNC management is doing a stellar job at keeping credit risk in check, and so less prone to default.

To further mitigate against downturn risk and credit losses, the bank has set aside substantial reserves for potential loan losses, amounting to over $3.2 billion.

PNC’s ability to cover its short-term liabilities with high-quality liquid assets, or in other words its liquidity coverage ratio, of over 110% speaks well of its stability too. For the most part when the ratio eclipses 100%, it’s considered pretty healthy, and PNC’s is sufficiently elevated to ensure that any potential liquidity crunch will likely be handled without excessive concern.

How Did PNC Get So Big?

PNC has grown tremendously over the years, expanding through acquisitions and focusing on organic growth, continued innovation, and better customer service. 

The acquisition completed in 2021 of BBVA USA was a key growth catalyst, and a move that opened new channels to bring more customers to the bank by offering additional products and services.

The growth of PNC has been driven also by its ongoing investment in digital banking solutions. Through increased investment in online and mobile banking, PNC has developed a loyal customer base of young clients who prefer to do most of their banking online rather than visiting a local brick and mortar branch. The drive for digitization has also enhanced the operational efficiencies and lowered expenses, fundamentally enhancing the bank’s profit margin.

Nonetheless, the company’s bread and butter are brick and mortar locations, and PNC intends to spend nearly $1 billion by the end of 2028 on opening more than 100 new branches in certain existing markets and renovating more than 1,200 locations nationwide. It’s making this investment after having reduced non-branch real estate by 17% during 2023.

The leadership team stayed aggressive on the cost management front throughout 2023 , having shut some of its branches and declared layoffs in October, which were designed to save $325 million.

PNC Profits On The Rise

PNC Financial Services’ second-quarter profit was up as underwriting and advisory fees grew, moderating the decline in interest income. Also, the investment banking business is reviving after having gone slightly dormant for about two years due to the increases in interest rates.

Capital markets and advisory revenue came in at $272 million in the quarter, which is 28% more than the same period in the prior year. The firm’s asset management and brokerage revenue increased by 5% to $364 million but net interest income fell by 6% year-over-year to $3.30 billion.

A vast majority of the U.S. banks, including PNC, have forecast a decline in NII this year primarily due to high interest rates that have curbed loan creation, while deposit costs are on the rise as the institutions seek to retain clients who began hunting for better yields elsewhere.

To curb inflation, the Fed has set interest rates at levels not seen for decades and sustains these rates even now, with the inflation rate targeted at 2% but expectations for rate cuts are high.

Some other interesting facts, average loans reduced by 1% to $319.9 billion, while the average deposits decreased by 2% and amounted to $417.2 billion. And for the three months ending June 30, PNC’s net income rose to $1.36 billion, or $3.39 per share, up from $1.35 billion, or $3.36 per share, in the same period the previous year.

PNC Can Be Counted On For Income

The PNC team has practiced disciplined capital management that has both shored up the balance sheet and rewarded shareholders.

Steady dividend payments that have enjoyed periodic increases exemplify this and make PNC bank an attractive choice for growth and income-oriented investors in their investment portfolios.

Dividend payouts have increased at a 9.3% CAGR over the past five years. PNC pays an annual distribution of $6.40 per share, which translates to a yield of 3.61% on the prevailing share price.

On July 2, the company declared a quarterly dividend on the common stock of $1.60 per share, an increase of 3% from the previous dividend of $1.55. 

Is PNC Worth Watching Now?

Even though PNC Financial Services faces some near-term challenges, its strong fundamentals, increased digitization, consistent innovation, and steady shareholder returns make it a stock to watch for potential long-term growth and stability.

Although analysts see somewhat limited upside to $187 per share, the consensus among 21 analysts, a dividends stable growth model would put intrinsic value at $316 per share, suggesting potentially a lot more upside than the casual investor may realize.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.