PNC Financial (PNC) to Incur Additional $130M in FDIC Fees in Q1
PNC Financial Services Group PNC, in a filing, announced an increase in its non-interest expense for first-quarter 2024 owing to higher special assessment fees.
In fact, the bank expects to incur an additional $130 million on a pre-tax basis related to the revised special assessment.
Following the failures of Silicon Valley Bank and Signature Bank in March 2023, large banks have been subjected to make payments as special assessment fees over eight quarters, starting in the ongoing quarter, to replenish the FDIC's Deposit Insurance Fund.
In November 2023, the agency estimated that the losses would amount to around $16.3 billion, which was later revised to $20.4 billion in February 2024. Hence, the new estimate will result in additional fee payment. In fourth-quarter 2023, PNC incurred a $515 million pretax charge for the assessment. With the additional $130 million, the assessment charge has increased to $645 million.
This is expected to increase its cost and weigh on earnings. In fact, the company’s non-interest expenses have witnessed a four-year CAGR (2019-2023) of 7.3%. A rise in personnel and equipment expenditure majorly contributed to the increase.
The company has undertaken cost-containment measures, targeting a total cost reduction of $750 million in 2024, through its Continuous Improvement Program and workforce reduction. Accordingly, in October 2023, the company began staff reductions, which are expected to drive $325 million of savings in 2024. Management had expected adjusted non-interest expenses to decline 3-4% in first-quarter 2024 on a sequential basis.
However, a rising expense base, on inflationary pressures and investments in technological advancements, is likely to continue affecting the bottom line in the longer term. We estimate expenses to record a three-year CAGR of 2.8%, ending in 2026.
Nonetheless, PNC Financial benefits from a strong balance sheet position. Total loans and deposits witnessed a four-year (2019-2023) compound annual growth rate (CAGR) of 7.6% and 9.9%, respectively. Capitalizing on growth opportunities, in October 2023, the company acquired loan commitments from Signature Bank worth approximately $16 billion. The growing loan balances and a well-diversified deposit base are likely to support the company's financials.
The company expects period-end loan balances to rise 3-4% in 2024. Our model estimates total loans and deposit balances to inch up at a CAGR of 3.5% and 1.1%, respectively, over the next three years (ended 2026).
Over the past six months, shares of PNC have gained 31.3% compared with the industry’s 28.5% growth.
Image Source: Zacks Investment Research
Currently, PNC carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Q1 Outlook Updates of Other Banks
At the UBS Financial Services Conference, JPMorgan’s JPM CFO Jeremy Barnum said that while the bank’s trading revenues are anticipated to increase sequentially in the first quarter of 2024, driven by normal seasonality, revenues in the markets division will likely decline 5-10% on a year-over-year basis.
At the conference, Barnum also shed some light on the expected performance of JPM’s investment banking business. He said that first-quarter 2024 investment banking fees are expected to rise by a low-to-mid teens percentage on a year-over-year basis.
Goldman Sachs’ GS CEO, David Solomon, is also not that optimistic about the performance of the company’s investment banking business. While Soloman said that “it's gotten better” compared with “super anemic” activity during parts of 2022 and 2023, he does not expect investment banking to climb back to historical averages over the last decade.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report
