A month has gone by since the last earnings report for PNC Financial Services (PNC). Shares have added about 2.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is PNC Financial Services due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
PNC Financial Q1 Earnings Beat on Higher Revenues
PNC Financial delivered a positive earnings surprise of 0.8% in first-quarter 2019. Earnings per share of $2.61 surpassed the Zacks Consensus Estimate of $2.59. Further, the bottom line reflects a 7.4% jump from the prior-year quarter.
Higher revenues, driven by easing margin pressure and escalating fee income, aided the results. However, rise in costs and provisions were headwinds.
The company’s net income for the quarter came in at $1.27 billion compared with $1.24 billion in the prior-year quarter.
Segment wise, on a year-over-year basis, quarterly net income at Corporate & Institutional Banking and Asset Management Group declined 11% and 17%, respectively. However, Retail Banking and Other, including the BlackRock segments, reported 15% and 12% rise in net income, respectively.
Revenues Rise, Costs Increase
Total revenues for the reported quarter came in at $4.29 billion, climbing 4% year over year. Additionally, the top line beat the Zacks Consensus Estimate of $4.24 billion.
Net interest income jumped 5% from the year-ago quarter to $2.48 billion. Elevated loan and securities yields, and balances were partly mitigated by growth in deposit and borrowing costs. Additionally, net interest margin expanded 7 basis points to 2.98%.
Non-interest income was up 3% year over year to $1.81 billion due to higher consumer services income, corporate services, service charges on deposits and other income, partially offset by lower income from asset management and residential mortgage.
PNC Financial’s non-interest expenses totaled $2.58 billion, up 2% from the year-ago quarter. The jump primarily stemmed from higher personnel and marketing expenses.
As of Mar 31, 2019, total loans were up 3% sequentially to $232.3 billion. Also, total deposits improved 1% to $271.2 billion.
Credit Quality: A Mixed Bag
Non-performing assets declined 11% to $1.79 billion year over year. Yet, net charge-offs increased 20% to $126 million.
Provision for credit losses more than doubled from the prior-year quarter to $189 million. Additionally, allowance for loan and lease losses increased 3% to $2.7 billion.
Steady Capital Position
As of Mar 31, 2019, the Basel III common equity Tier 1 capital ratio, effective Jan 1, 2018, was 9.8% compared with 9.6% as of Mar 31, 2018.
In the January-March quarter, PNC Financial repurchased 5.9 million common shares for $725 million. Further, dividends of $438 million were distributed.
The company expects average loans to rise about 1% on a sequential basis.
Management expects NII to grow in low-single digits. Fee income is expected to increase in mid-single digits sequentially. Other non-interest income is anticipated to be in the range of $275-$325 million.
Non-interest expenses are expected to increase in low-single digits on a sequential basis.
Provisions for loan loss are estimated to be in the range of $125-$200 million.
Full-Year 2019 Compared With Full-Year 2018
The company assumes steady growth in GDP along with no change in short-term interest rates.
Loans are anticipated to grow 3-4%.
Management anticipates revenues to increase in low-single digits.
For the remaining 2019, management expects deposit beta to continue rising but at a slower pace in comparison to 2018, given the Federal Reserve’s decision to not increase interest rates.
Regarding provision, the company anticipates to see some volatility quarter-to-quarter due to the pace and mix of loan growth and the timing of specific loan reserves and releases.
Further, non-interest expenses are predicted to rise at low-single digit rates.
The company expects to deliver positive operating leverage for full-year 2019.
The effective tax rate is projected to be approximately 17%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, PNC Financial Services has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, PNC Financial Services has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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