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What Helped PNC Financial Command Premium Valuations in 4Q16?

PART:
1 2 3 4 5
Part 2
What Helped PNC Financial Command Premium Valuations in 4Q16? PART 2 OF 5

Why PNC Financial Is Expected to Expand Its Loan Book in 4Q16

Loan book expansion

PNC Financial Services (PNC) engages in corporate, retail, and institutional banking. The diversified giant expanded its commercial lending to $138 billion in 3Q16, a rise of 1%, or $1.1 billion, compared to the previous quarter. The rise was mainly due to PNC’s corporate banking and real estate businesses.

Why PNC Financial Is Expected to Expand Its Loan Book in 4Q16

Why PNC Financial Is Expected to Expand Its Loan Book in 4Q16

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On the other hand, its average consumer lending rose a marginal $0.3 billion. The rise came as the result of growth in residential mortgage, auto, and credit card loans, and it was partially offset by lower growth in home equity and education loans reflecting runoff portfolios.

In 4Q16, the bank is expected to see higher commercial lending on continued growth in its real estate business and its other expanding businesses.

Other banking giants that are strong on the commercial lending front include Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C). JPMorgan Chase has a weight of 8.1% in the Financial Select Sector SPDR ETF (XLF).

Expanding deposits, loan book

PNC Financial had a loan-to-deposit ratio of ~81% on September 30, 2016, as growth in its loan book was more than offset by higher commercial deposits. The company saw a $10.1 billion rise in its deposit base to $259.9 billion compared to the previous quarter. Its average deposits rose by $4.9 billion due to seasonal growth in its commercial deposits. Rising demand and savings deposits reflected a shift from money market deposits to relationship-based savings products.

The company’s total borrowed funds fell $3.0 billion to $51.6 billion in 3Q16 compared to the previous quarter. The fall was mainly due to due to lower federal home loan bank borrowings. The estimated liquidity coverage ratio exceeded 100% for both PNC and PNC Bank on September 30, 2016. The requirement is 80% according to the new regulatory short-term liquidity standard, which became effective on January 1, 2015.

In the next part of the series, we’ll study PNC’s expected growth in non-interest income.

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