PNC FINANCIAL SERVICES GROUP, INC. 10-K Analysis & Summary – 2/21/2025

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PNC Financial Services Group, I

10-K

Annual report

Filing date:

02/21/2025

TLDR:

PNC Financial Services Group’s 2024 10-K filing shows a slight increase in net income driven by lower noninterest expense and higher noninterest income, offset by a decrease in net interest income. The company maintains strong capital and liquidity positions but faces risks related to economic conditions, interest rate fluctuations, and cybersecurity.

ELI5:

PNC, a big bank, made a bit more money this year because they spent less and earned more from some areas, even though they made less from interest. They’re in good financial shape, but things like the economy, interest rates, and hackers could cause problems.

Accession #:

0000713676-25-000027

Published on

March 16, 2025

Analyst Summary

Net income increased by 5% year-over-year.
Net interest income decreased by 3%, indicating pressure on margins.
Noninterest income increased by 6%, driven by capital markets and advisory fees.
Noninterest expense decreased by 3%, primarily due to lower FDIC special assessment costs and personnel expenses.
Net Interest Margin: 2.66% (down from 2.76% in 2023)
Efficiency Ratio: 63% (improved from 65% in 2023)
Return on Average Common Shareholders’ Equity: 11.92% (down from 12.35% in 2023)
Return on Average Assets: 1.05% (up from 1.01% in 2023)
Loans decreased slightly, indicating potentially weaker loan demand.
Investment securities increased, reflecting a shift in asset allocation.
Deposits increased slightly, indicating continued customer confidence.
Borrowed funds decreased, reflecting improved liquidity management.
Nonperforming assets increased slightly, driven by commercial real estate.
Net charge-offs increased, indicating some deterioration in loan quality.
The allowance for credit losses decreased slightly, reflecting improved macroeconomic factors.
Operating Profit Margin: 33.6%
Net Profit Margin: 27.6%
Return on Assets (ROA): 1.05%
Return on Equity (ROE): 11.9%
Diluted EPS: $13.74
Debt-to-Equity Ratio: 9.3
Debt-to-Assets Ratio: 90.3%
Interest Coverage Ratio: 1.56
Asset Turnover: 3.8%
Price-to-Earnings Ratio (P/E): 13.7
Price-to-Book Ratio (P/B): 1.53
Price-to-Sales Ratio (P/S): 3.46
Enterprise Value to EBITDA (EV/EBITDA): 6.1
Revenue Growth: 0.3%
Net Income Growth: 5.4%
EPS Growth: 7.4%
Tangible Book Value Per Common Share (Non-GAAP): $95.33 in 2024, compared to $85.08 in 2023.

Opportunities and Risks

Economic Conditions: PNC’s performance is highly sensitive to economic downturns, inflation, and unemployment.
Interest Rate Risk: Fluctuations in interest rates can significantly impact net interest income and the value of financial instruments.
Credit Risk: Deterioration in borrower creditworthiness could lead to increased loan losses. The office commercial real estate portfolio is a particular area of concern.
Cybersecurity: Data breaches and cyberattacks pose a significant threat to PNC’s operations and reputation.
Regulatory Changes: New regulations and increased regulatory scrutiny could increase compliance costs and limit business opportunities.
Strategic Initiatives: PNC’s focus on expanding market presence, deepening customer relationships, and leveraging technology could drive future growth.
Strong Capital Position: PNC’s strong capital ratios provide flexibility for future investments and capital returns.
Cost Management: Continued efforts to manage expenses could improve profitability.

Potential Implications

PNC Financial Services Group, Inc. (PNC) – 2024 10-K Filing Analysis

Executive Summary

This report analyzes PNC Financial Services Group, Inc.’s 2024 10-K filing. Key findings include a slight increase in net income driven by lower noninterest expense and higher noninterest income, offset by a decrease in net interest income. The company maintains strong capital and liquidity positions. The report identifies potential risks related to economic conditions, interest rate fluctuations, and cybersecurity. Overall, the company appears financially sound, but faces challenges common to the banking industry. A hold rating is suggested, pending further observation of macroeconomic trends and their impact on PNC’s loan portfolio.

Company Overview

PNC Financial Services Group, Inc. is a diversified financial services company headquartered in Pittsburgh, Pennsylvania. It operates through three main segments: Retail Banking, Corporate & Institutional Banking, and Asset Management Group. The company provides a wide range of financial products and services, including deposit accounts, loans, investment management, and corporate banking solutions. Recent developments include the acquisition of a portfolio of capital commitment facilities from Signature Bridge Bank, N.A.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management highlights a focus on long-term value creation through customer acquisition, loan and deposit growth, and revenue generation. They emphasize strategic priorities such as expanding market presence, deepening customer relationships, and leveraging technology. The MD&A acknowledges the impact of external factors like economic conditions and regulatory changes. Management expresses optimism about future performance, but also recognizes potential risks.

Financial Statement Analysis

Income Statement

Key observations from the income statement include:

Net income increased by 5% year-over-year.
Net interest income decreased by 3%, indicating pressure on margins.
Noninterest income increased by 6%, driven by capital markets and advisory fees.
Noninterest expense decreased by 3%, primarily due to lower FDIC special assessment costs and personnel expenses.

Key Ratios

Net Interest Margin: 2.66% (down from 2.76% in 2023)
Efficiency Ratio: 63% (improved from 65% in 2023)
Return on Average Common Shareholders’ Equity: 11.92% (down from 12.35% in 2023)
Return on Average Assets: 1.05% (up from 1.01% in 2023)

Balance Sheet

Key observations from the balance sheet include:

Total assets remained relatively stable.
Loans decreased slightly, indicating potentially weaker loan demand.
Investment securities increased, reflecting a shift in asset allocation.
Deposits increased slightly, indicating continued customer confidence.
Borrowed funds decreased, reflecting improved liquidity management.

Credit Quality

Key observations on credit quality include:

Nonperforming assets increased slightly, driven by commercial real estate.
Net charge-offs increased, indicating some deterioration in loan quality.
The allowance for credit losses decreased slightly, reflecting improved macroeconomic factors.

Risk and Opportunities

Risks

Economic Conditions: PNC’s performance is highly sensitive to economic downturns, inflation, and unemployment.
Interest Rate Risk: Fluctuations in interest rates can significantly impact net interest income and the value of financial instruments.
Credit Risk: Deterioration in borrower creditworthiness could lead to increased loan losses. The office commercial real estate portfolio is a particular area of concern.
Cybersecurity: Data breaches and cyberattacks pose a significant threat to PNC’s operations and reputation.
Regulatory Changes: New regulations and increased regulatory scrutiny could increase compliance costs and limit business opportunities.

Opportunities

Strategic Initiatives: PNC’s focus on expanding market presence, deepening customer relationships, and leveraging technology could drive future growth.
Strong Capital Position: PNC’s strong capital ratios provide flexibility for future investments and capital returns.
Cost Management: Continued efforts to manage expenses could improve profitability.

Uncommon Metrics

The filing highlights the following uncommon metrics:

Cross-Jurisdictional Activities: PNC’s cross-jurisdictional activities are below the threshold for Category II designation, but close monitoring is needed.
Weighted Short-Term Wholesale Funding: PNC’s weighted short-term wholesale funding is below the threshold for full LCR and NSFR requirements.

Conclusion and Actionable Insights

PNC Financial Services Group demonstrates a solid financial foundation, but faces challenges in a dynamic economic and regulatory environment. The increase in nonperforming assets, particularly in the office commercial real estate portfolio, warrants close monitoring. The company’s strategic initiatives and strong capital position provide opportunities for future growth.

Overall Assessment: Hold. While PNC’s financial performance is stable, the identified risks and uncertainties suggest a cautious approach. A hold rating is recommended, pending further observation of macroeconomic trends and their impact on PNC’s loan portfolio.

PNC Financial Analysis

1. Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

Ratio/Metric: Not applicable for financial institutions as they do not have “cost of goods sold” in the traditional sense.

Operating Profit Margin

Ratio/Metric: Income before income taxes and noncontrolling interests / Total revenue = $7,242 / $21,555 = 33.6%

Net Profit Margin

Ratio/Metric: Net income / Total revenue = $5,953 / $21,555 = 27.6%

Return on Assets (ROA)

Ratio/Metric: Net income / Average assets = $5,953 / $564,883 = 1.05%

Return on Equity (ROE)

Ratio/Metric: Net income / Average common shareholders’ equity = $5,953 / $49,971 = 11.9%

Earnings Per Share (EPS) – Basic and Diluted

Ratio/Metric: Diluted EPS = $13.74

Liquidity

Current Ratio

Ratio/Metric: Current Assets / Current Liabilities. Approximating current assets as cash, interest-earning deposits, loans held for sale, and securities available for sale: ($6,904 + $39,347 + $850 + $62,039) / (Total deposits + Allowance for unfunded lending related commitments) = $109,140 / ($426,738 + $719) = 0.26

Quick Ratio (Acid-Test Ratio)

Ratio/Metric: (Cash + Marketable Securities) / Current Liabilities = ($6,904 + $62,039) / ($426,738 + $719) = 0.16

Cash Ratio

Ratio/Metric: Cash / Current Liabilities = $6,904 / ($426,738 + $719) = 0.02

Solvency/Leverage

Debt-to-Equity Ratio

Ratio/Metric: Total Liabilities / Total Shareholders’ Equity = $505,569 / $54,425 = 9.3

Debt-to-Assets Ratio

Ratio/Metric: Total Liabilities / Total Assets = $505,569 / $560,038 = 90.3%

Interest Coverage Ratio (Times Interest Earned)

Ratio/Metric: Earnings Before Interest and Taxes / Interest Expense = ($5,953 + $1,289 + $12,885) / $12,885 = 1.56

Activity/Efficiency

Asset Turnover

Ratio/Metric: Total Revenue / Average Total Assets = $21,555 / $564,883 = 0.038 or 3.8%

Valuation

Price-to-Earnings Ratio (P/E)

Ratio/Metric: Stock Price / EPS = $188.05 / $13.74 = 13.7

Price-to-Book Ratio (P/B)

Ratio/Metric: Stock Price / Book Value per Share = $188.05 / $122.94 = 1.53

Price-to-Sales Ratio (P/S)

Ratio/Metric: Market Cap / Total Revenue. Shares outstanding = 396 million. Market Cap = 396,000,000 * $188.05 = $74,467,800,000 = $74,467.8 million. P/S = $74,467.8 / $21,555 = 3.46

Enterprise Value to EBITDA (EV/EBITDA)

Ratio/Metric: EV = Market Cap + Total Debt – Cash. Total Debt = Borrowed Funds = $61,673 million. Cash = $6,904 million. EV = $74,467.8 + $61,673 – $6,904 = $129,236.8 million. EBITDA = Net Income + Interest + Taxes + Depreciation and Amortization = $5,953 + $12,885 + $1,289 + $1,051 = $21,178 million. EV/EBITDA = $129,236.8 / $21,178 = 6.1

Growth Rates

Revenue Growth

Ratio/Metric: ($21,555 – $21,490) / $21,490 = 0.3%

Net Income Growth

Ratio/Metric: ($5,953 – $5,647) / $5,647 = 5.4%

EPS Growth

Ratio/Metric: ($13.74 – $12.79) / $12.79 = 7.4%

Other Relevant Metrics

Tangible Book Value Per Common Share (Non-GAAP): This metric is calculated by subtracting goodwill and other intangible assets (net of deferred tax liabilities) from common shareholders’ equity and dividing by the number of common shares outstanding. It provides a measure of the net asset value of the company available to common shareholders, excluding intangible assets. In 2024, it is $95.33, compared to $85.08 in 2023.

2. Commentary

PNC Financial Services exhibited a mixed financial performance in 2024. While net income and EPS grew, revenue growth was marginal, and net interest income declined slightly. The bank maintained strong capital ratios and improved its efficiency ratio, but credit quality remains a concern with an increase in nonperforming assets. Overall, PNC’s profitability is solid, but it faces challenges in a changing interest rate environment and needs to manage credit risk effectively. The bank’s valuation metrics suggest it is trading at a reasonable level compared to its earnings and assets.