A month has gone by since the last earnings report for PNC Financial Services (PNC). Shares have added about 2% 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 drivers.
PNC Financial Q3 Earnings Beat Estimates, Revenues Up
Driven by stellar revenues, PNC Financial delivered a positive earnings surprise of 3.3% in third-quarter 2018. Earnings per share of $2.82 beat the Zacks Consensus Estimate of $2.73. Moreover, the bottom line reflected a 30.6% jump from the prior-year figure.
Continued easing of pressure on net interest margin led to higher net interest income during the reported quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth. Lower provisions remained another tailwind. However, escalated costs hurt results to some extent.
The company’s net income for the quarter came in at $1.4 billion, up 27.3% from the prior-year quarter.
Segment wise, on a year-over-year basis, quarterly net income at Corporate & Institutional Banking, Asset Management Group and Retail Banking improved 26.7%, 29.8% and 22%, respectively. Also, net income for Other, including the BlackRock segment, increased 21.4%.
Revenue Growth Offsets Higher Expenses
Total revenues for the quarter came in at $4.36 billion, climbing 6% year over year. Also, the reported figure outpaced the Zacks Consensus Estimate of $4.32 billion.
Net interest income jumped 5% from the year-ago quarter to $2.47 billion. Elevated loan, and securities yields and balances were partly mitigated by growth in deposit and borrowing costs. Additionally, net interest margin shrunk 8 basis points to 2.99%.
Non-interest income was up 6% year over year to $1.89 billion, aided by higher asset management income, consumer services income, corporate services and service charges on deposits, partially offset by lower income from residential mortgage and other income.
PNC Financial’s non-interest expenses totaled $2.6 billion, up 6% from the year-ago tally. The upswing primarily stemmed from higher personnel and marketing-related costs.
As of Sep 30, 2018, total loans inched up nearly 1% year over year to $223.1 billion. Also, total deposits improved 2% to $264.9 billion.
Credit Quality Improves
Provision for credit losses was $88 million, down 32% from $130 million reported in the prior-year quarter. Also, non-performing assets declined 12% to $1.83 billion. Further, net charge-offs fell 14% year over year to $91 million.
Capital Position Weakens
As of Sep 30, 2018, the Basel III common equity Tier 1 capital ratio, effective Jan 1, 2018, was 9.3% compared with 9.8% as of Sep 30, 2017.
In the July-September quarter, PNC Financial repurchased 3.3 million common shares for $0.5 billion. Also, dividends of $0.4 billion were distributed.
The company expects loans to grow modestly on a sequential basis.
Management expects NII and fee income to increase in low-single digits sequentially. Other non-interest income is anticipated to be in the range of $225-$275 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 $100-$150 million.
Full-Year 2018 Compared with Adjusted Full-Year 2017
The company assumes steady growth in GDP along with increasing short-term interest rates. In 2018, it expects two rate hikes of 25 bps each in June and December.
Loans are anticipated to grow in mid-single digits.
Management anticipates revenues to increase in mid-single digits.
Further, non-interest expenses are predicted to rise at low-single digit rates.
The effective tax rate is projected to be approximately 17%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, PNC Financial Services has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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