PNC Earnings: Some Fee Weakness, but We Like Net Interest Income Results

Narrow-moat-rated PNC Financial Services provided our first look at earnings from a larger regional bank for the third quarter, reporting mixed results compared with the largest banks that have already reported. Like the largest banks, PNC increased its outlook for full-year net interest income growth (to 7% from 5%-6%) based on next quarter’s guidance. EPS positively surprised by coming in at $3.60, 10% higher than our $3.27 expectation and 16% higher than FactSet consensus of $3.10. Thinking about a read-through for upcoming regional results, we were encouraged that PNC's results did not deteriorate from the mid-September update we got. We were hoping this might be the first quarter where we do not see more negative NII revisions, and PNC’s results support that thesis so far. While the current NII outlook is holding up, the current interest-rate environment will continue to drive up deposit costs, albeit at a slower pace, and we have not reached perfect equilibrium just yet.