It has been about a month since the last earnings report for The PNC Financial Services Group, Inc. PNC. Shares have added about 3.4% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
PNC Financial's Q2 Earnings Beat, Costs Increase
Riding on higher revenues, PNC Financial Services reported a positive earnings surprise of 4.5% in second-quarter 2017. Earnings per share of $2.10 easily beat the Zacks Consensus Estimate of $2.01. Moreover, it reflects a 15% increase from the prior-year quarter.
Continued growth in loans helped the company earn higher revenues during the quarter. Further, decline in provision for loan losses was a tailwind. However, the positives were partially offset by an increase in expenses.
The company reported net income of $1.1 billion in the reported quarter, up 11% year over year.
Segment wise, on a year-over-year basis, quarterly net income in Corporate & Institutional Banking and Other, including BlackRock, improved 13% and 9%, respectively. Further, net income for Asset Management segment increased 8%.
However, net income in the Retail Banking segment declined 3%.
Higher Expenses More than Offset by Revenue Growth
Total revenue for the quarter came in at $4.06 billion, rising 7% year over year. The reported figure surpassed the Zacks Consensus Estimate of $4 billion.
Net interest income was up 9% year over year to $2.26 billion due to higher loan and securities balances. Also, net interest margin increased 14 basis points (bps) year over year to 2.84%.
Non-interest income was up 4% year over year to $1.80 billion, driven by higher corporate services, asset management and other income, partially offset by lower income from residential mortgage.
PNC Financial’s non-interest expenses were $2.48 billion, up 5% from the year-ago quarter. The quarter witnessed rise in marketing, personal and equipment-related expenses.
As of Jun 30, 2017, total loans were up 2% sequentially to $218 billion, supported by commercial lending. However, total deposits dropped 1% to $259.2 billion.
Credit Quality Improves
PNC Financial’s credit quality reflected significant improvement in the quarter.
Non-performing assets declined 14% year over year to $2.15 billion. Moreover, allowance for loan and lease losses fell 5% year over year to $2.56 billion.
Net charge-offs declined 18% year over year to $110 million. Further, provision for credit losses was $98 million, down 23% from $127 million in the prior-year quarter.
Capital Position Weakens
As of Jun 30, 2017, the transitional Basel III common equity Tier 1 capital ratio was 10.3%, down 3 bps year over year. Tier 1 risk-based capital ratio and leverage ratio were 11.6% and 9.9%, respectively, compared with 11.9% and 10.2% at the prior-year quarter end.
In the second quarter, PNC Financial repurchased 5.7 million common shares for $0.7 billion.
PNC Financial is well positioned to grow based on its diverse revenue mix and continued improvement in credit quality. Further, an increase in lending activities augurs well for the company. Margin improvement due to rising interest rates should continue to support its top line.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been five upward revisions in the current quarter
The PNC Financial Services Group, Inc. Price and Consensus
The PNC Financial Services Group, Inc. Price and Consensus | The PNC Financial Services Group, Inc. Quote
At this time, PNC Financial's stock has a poor Growth Score of F, however its Momentum is doing a lot better with an A. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable solely for momentum investors.
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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