PNC Financial Services Group PNC recently disclosed that it anticipates an additional $130 million in pre-tax expenses for the first quarter of 2024 due to increased special assessment fees.
In the wake of the failures of Silicon Valley Bank and Signature Bank in March 2023, major banks are mandated to pay special assessment fees over a period of eight quarters starting from the ongoing quarter. This endeavor aims to prop up the FDIC’s Deposit Insurance Fund, which faced an escalated loss estimate. Originally forecasted at $16.3 billion in November 2023, this figure climbed to $20.4 billion by February 2024, thus necessitating the additional fee payment. In the fourth quarter of 2023, PNC already bore a $515 million pretax charge for the assessment, which, with the new $130 million, surged to $645 million.
Bearing the Weight of Expenses
The increasing expense burden is poised to impact the bank’s financials. PNC’s non-interest expenses have displayed a four-year compound annual growth rate (CAGR) of 7.3% from 2019 to 2023. Notably, rises in personnel and equipment expenses have been the primary contributors to this uptrend.
Strategic Maneuvers and Growth Amidst Stormy Seas
To counterbalance these escalating costs, PNC Financial is implementing measures to reduce total costs by $750 million in 2024 through its Continuous Improvement Program and employee downsizing initiatives. Commencing staff reductions in October 2023, the company is expected to yield $325 million in savings for the year. Despite these cost-cutting strategies, underlying inflation pressures and investments in technology may continue to impact the bank’s bottom line in the long run, with expenses forecasted to grow at a 2.8% CAGR through 2026.
Fortress Balance Sheet Amidst Choppy Waters
While grappling with mounting expenses, PNC Financial capitalizes on its robust balance sheet. Total loans and deposits have seen a CAGR of 7.6% and 9.9%, respectively, from 2019 to 2023. Seizing growth opportunities, the bank acquired loan commitments worth around $16 billion from Signature Bank in October 2023. The bank’s expanding loan balances and diversified deposit base are expected to underpin its financial stability.
Forecasts predict a 3-4% rise in period-end loan balances in 2024, with estimates pegging total loan and deposit balances to inch up at a 3.5% and 1.1% CAGR, respectively, over the next three years until 2026.
Market Comparison and Long-Term Prospects
Over the last six months, PNC’s stock has surged by 31.3%, outpacing the industry’s 28.5% growth.
PNC Financial currently holds a Zacks Rank #3 (Hold).
