- PNC's stock price fell 1.62% on news that higher mortgage rates threaten the housing market, though its stake in BlackRock provides growing earnings. - While PNC saw increased revenue and net income in 2017, rising non-interest expenses reduced profit growth, and net interest margins are expected to expand at a slower pace in 2018. - Valuation models estimate PNC's intrinsic value between $68-145 per share, below its current price of $157, suggesting the stock is overvalued.

1. Ticker: PNC
Date: 03/14/2018

2. FINANCIAL SECTOR NEWS
• Small and medium size banks under stricter rules.
• Higher interest rates a key revenue driver for U.S.
Banks.
• U.S. Banks Net interest margins are expected to
expand at slower pace in 2018.
SOURCE: BLOOMBERG, WSJ

3. COMPANY NEWS
• PNC’s Blackrock Stake provides growing addition to earnings.
• Mortgage rate at a four year high threaten to roil housing.
Source: https://www.wsj.com/articles/mortgage-rates-at-a-four-year-high-threaten-to-roil-housing-1520539554,valuepenguin.com

4. CURRENT POSITION
TICKER: PNC
INDUSTRY: FINANCIALS
MARKET CAPITALIZATION: 76,520.3 million
NUMBER OF SHARES OUTSTANDING:471.6 million
CURRENT PRICE: $157.84
RECOMMENDATION: Sell
PRICE 157.84 CHANGE - $2.60
VOLUME 1,778,626 % CHANGE 1.62%
INTRADAY HIGH $161.79 52 WEEK HIGH $163.59
INTRADAY LOW $157.58 52 WEEK LOW $115.25

5. BUSINESS SEGMENT REVENUE(2017)
46%
39%
8%
7%
Chart Title
RETAIL BANKING
CORPORATE AND
INSTITUTIONAL
BANKING
ASSET MANAGEMENT
GROUP
BLACKROCK
BUSINESS SEGMENTS REVENUE BREAKDOWN
Retail banking 46.4%
Corporate and Institutional
banking
38.4%
Asset management group 7.9%
Blackrock 7.3%
• The Revenue in retail banking has increased from 6,597 million(2016) to 6,816 million(2017) by 4%
• The Revenue in corporate and Institutional banking has increased from 5379 million(2016) to 5667 million(2017) by 5.35%
• The Revenue in Asset management group has increased from 1151 million(2016) to 1168 million(2017) by 1.48%
• The Revenue in Blackrock has the major increase from 685 million(2016) to 1078 million(2017) by 57.4%
HIGH POTENTIAL – RETAIL BANKING
SOURCE: BLOOMBERG

6. NET INTEREST MARGIN
YEAR
INTEREST
INCOME
INTEREST
EXPENSE
NET INTEREST
INCOME
NET INTEREST
MARGIN
In million In million In million
2013 10,007.00 860 9,147.00 -5.11%
2014 9,431.00 906 8,525.00 -6.8%
2015 9,323.00 1,045.00 8,278.00 -2.9%
2016 9,652.00 1,261.00 8,391.00 1.37%
2017 10,814.00 1,706.00 9,108.00 8.54%
-10.00%
-5.00%
0.00%
5.00%
10.00%
NET INTEREST MARGIN
(in %)
2013 2014 2015 2016 2017
• Over the years 2009-2012, there was a healthy growth in the net interest income.
• In the past 5 years 2013-2017, there was instability in the net interest income.
• The negative interest margin indicate there is some bad decision in the investments
made.
• It is in 2017, the investments generated more income (10,814 million) after 5 years.
But since the expenses also enriched, the net interest income declined.
SOURCE: BLOOMBERG

7. KEY RATIOS
1. RETURN ON EQUITY
10.38
9.63
9.2
8.63
11.45
RETURN ON EQUITY
(IN %)
2013 2014 2015 2016 2017
YEAR
RETURN ON EQUITY
(in %)
2013 10.38
2014 9.63
2015 9.2
2016 8.63
2017 11.45
• In 2017, the ROE is 11.45% which is the highest compared to the past 5
years.
• This is due to the raise in net income.
SOURCE: BLOOMBERG

8. 2. RETURN ON ASSET
YEAR
RETURN ON ASSET
(in %)
2013 1.35
2014 1.26
2015 1.17
2016 1.08
2017 1.43
• In 2017, the ROA is 1.43% , highest in the past 5 years.
• Reason is the increase in net income and total assets.
SOURCE: BLOOMBERG
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
RETURN ON ASSET
2013 2014 2015 2016 2017

9. 3. LOANS TO DEPOSITS RATIO
• The Ideal LTD ratio is between 80% and 90%
• It represents the low liquidity risk(84.2%) at the end of Q4 2017.
SOURCE: Bloomberg, https://www.investopedia.com/terms/l/loan-to-deposit-ratio.asp

10. BALANCE SHEET
SOURCE: BLOOMBERG
ASSETS AMOUNT
(in million)
LIABILITIES &
SHAREHOLDER’S
EQUITY
AMOUNT
(in million)
Cash & Cash
equivalents
5249.0 Demand deposits 61213.0
Investment
securities available
for sale
57618.0 Time deposits 17261.0
Investment
securities available
to maturity
18513.0 Saving deposits 106715.0
Total consumer
loans
73019.0 Long term debt 54299.0
Total commercial
loans
147439.0 - -
Property, Plant and
equipment
5436.0 Common stock 2710.0
Intangible assets 9498.0 Total equity 47585.0
Total assets 380768.0 Total liabilities &
equity
380768.0

11. BALANCE SHEET CONTINUED…
• Highest cash & cash equivalents in the past 10 years on an average of 3%.
• Investments securities available for sale is higher than the securities held to maturity.
• Consumer loans include credit card loans, equity loans, auto loans, student loans,
residential mortgage.
• Loan distribution is high compared to the previous year by 0.19%
• Interest bearing( time and saving deposits) and non interest bearing
deposits(demand deposits) are low compared to the previous years by 2.3%
SOURCE: BLOOMBERG

12. INCOME STATEMENT
SOURCE: BLOOMBERG
PARTICULARS AMOUNT
(in millions)
Net interest income 9108.0
Non interest income 7221.0
Total revenue 16329.0
Non interest expenses 10062.6
Loan loss provision 441.0
Income taxes 102.0
Net income 5076.0
16329
5723.4
TOTAL REVENUE & NET INCOME
Total revenue Net income
• The Total revenue is approximately twice the net income.
• The major expense declining the net income is the non interest expenses.

13. KEY FINANCIAL ANALYSIS OF 2017
NET REVENUE – 16329.0 million
NET INCOME- 5076.0 million
OPERATING INCOME – 5490.0 million
EPS – $8.52
DIVIDEND YIELD – 1.85%
TOTAL ASSETS – 380.7 million
TOTAL LOANS – 223.1 million
TOTAL DEPOSITS – 265 million
SOURCE: BLOOMBERG

14. SWOT ANALYSIS
STRENGTHS
• Above par return on equity
• Less liquidity risk
• Good deposit base
• 22% Blackrock stake.
WEAKNESS
• Less advancement in technology.
• Increasing non interest expenses.
THREATS
• Tax cuts and Jobs act will impact
in customer behavior.
•Adverse economic conditions can
impact.
OPPORTUNITIES
• Growing mobile banking market.
• More focus towards international markets.
• Introduce innovative products and
services.

15. VALUATION MODEL
DIVIDEND DISCOUNT MODEL COST OF EQUITY
SOURCE: BLOOMBERG
• 11% growth rate in dividends expected in the next 5 years.
• After the next 5 years, 5% growth rate is expected for 10 years.
CAPM:
Market Return 10.00%
Risk free rate 2.86%
Country risk premium 7.10%
Beta 1.08
equity risk premium 7.65%
Cost of equity 10.51%
CURRENT DIVIDEND $2.60
SHORT TERM GROWTH RATE 11%
LONG TERM GROWTH RATE 5%
COST OF EQUITY 10.51%
TERMINAL VALUE $48.18
INTRINSIC VALUE $68.51

16. RESIDUAL INCOME
SOURCE: BLOOMBERG
CURRENT PRICE 157.86
BOOK VALUE 91.99
CURRENT EPS 8.52
CURRENT DIVIDEND 2.6
COST OF EQUITY 10.51%
YEAR 2018 2019 2020
EPS 10.5 11.59 13.09
GROWTH RATE(EPS) 23.2% 10.4% 12.9%
DPS 2.89 3.2 3.56
GROWTH RATE(DPS) 11.0% 9.0% 7.0%
CHANGE IN RETAINED EARNINGS 7.61 8.39 9.53
NEW BOOK VALUE 99.6 107.99 117.52
EQUITY CHARGE PER SHARE 10.47 11.35 12.35
RESIDUAL INCOME 0.03 0.24 0.74
PRESENT VALUES 0.03 0.20 0.55
TERMINAL VALUE 48.81
INTRINSIC VALUE 141.57

17. RE-EVALUATED RELATIVE VALUATION
SOURCE: BLOOMBERG
P/E P/BV P/TBV
PNC 17 1.57 2.01
Webster financials 21.72 2.03 2.6
Fifth third 13.25 1.4 1.68
Bank of Hawaii 19.37 2.95 3.03
Wells Fargo&Co. 16.28 1.63 1.99
Huntington 14.87 1.61 2.12
Comerica Inc. 18.4 1.88 2.05
MEDIAN 17 1.63 2.05
EPS 8.49
BOOKVALUE 91.99
TANGIBLE BOOK VALUE 71.91
144.33 149.94 147.42
WEIGHTS 0.33 0.33 0.33
INTRINSIC VALUE $ 145.76

18. TARGET PRICE
VALUATION MODELS INTRINSIC VALUE WEIGHTS INTRINSIC VALUE*WEIGHTS
DDM $ 68.51 0.20 $ 13.70
RESIDUAL INCOME $ 141.57 0.30 $ 42.47
RELATIVE VALUATION $ 145.76 0.50 $ 72.88
TARGET PRICE $ 129.05

19. RECOMMENDATION
Sell all shares
REASONS FOR RECOMMENDATION:
• Over valued stock.
• Uncertain potential in the stock price.