PNC Earnings: Net Interest Income Holds Up Relatively Well

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 PNC reported second-quarter earnings per share of $3.39. Special items in the quarter included an accounting gain on Visa Class B shares, partially offset by security repositioning, derivative fair value adjustments, and a contribution expense to the PNC Foundation. The net impact of all nonrecurring items to EPS was about $0.09.

Fees came in slightly higher than in the first quarter, primarily driven by growth in capital markets fees and other income. Loan growth numbers were muted in the first half of the year, and management doesn’t see evidence of this improving in the near term. We don’t anticipate a significant change to our $175 fair value estimate as we incorporate second-quarter results.

Net interest income fared better than expected in the quarter, up 1% sequentially. It is expected to be down 3%-4% for the full year. We believe NII is now close to its bottom, but future growth should be modest. The bank should benefit from the continued repositioning of its balance sheet, as long-duration securities earning relatively low yields have been replaced with ones earning higher market yields. Management estimates that repositioning around $3.8 billion of low-yielding securities should cause a positive impact of $140 million on NII in 2025. However, the NII growth coming from this repositioning will be partially offset by how lower rates impact the bank’s asset-sensitive balance sheet in upcoming years.

PNC’s prudent continuous improvement program and workforce reduction efforts have kept expense growth in check. We think expenses will pick up slightly in the back half of the year but still be within 2% of total first-half expenses. Our expense forecast for the year is in line with PNC’s guidance. We think the bank is well on its way to decrease core expenses by 1% for the year.