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Why is PNC Financial (PNC) Down 1.1% Since Last Earnings Report?

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It has been about a month since the last earnings report for The PNC Financial Services Group, Inc (PNC - Free Report) . Shares have lost about 1.1% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is PNC due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

PNC Financial Beats Q1 Earnings Estimates, Revenues Up

PNC Financial reported first-quarter 2018 earnings per share of $2.43 beating the Zacks Consensus Estimate by a penny. Moreover, the bottom line reflected a 24% increase from the prior-year quarter.

Continued easing of pressure on net interest margin helped the company earn higher net interest income during the quarter. Though mortgage banking revenues declined, overall non-interest income witnessed year-over-year growth. However, higher expenses hurt results to some extent. Further, the results were partially offset by higher provisions.

The company’s net income for the quarter was $1.24 billion, up 15.4% from the prior-year quarter.

Segment wise, on a year-over-year basis, quarterly net income at Corporate & Institutional Banking and Asset Management improved 20.1% and 44.7%, respectively. Also, net income for the Retail Banking segment increased 3.6%. However, Other, including the BlackRock segment’s net income declined 11.8% from the prior-year quarter.

Revenue Growth Offsets Higher Expenses

Total revenues for the quarter came in at $4.11 billion, rising 6% year over year.

Net interest income was up 9% year over year to $2.36 billion. Also, net interest margin increased 14 basis points (bps) to 2.91%.

Non-interest income was up 2% year over year to $1.75 billion, driven by higher asset management income, consumer services income, service charges on deposits and other income, partially offset by lower income from residential mortgage.

PNC Financial’s non-interest expenses were $2.53 billion, increasing 5% from the year-ago quarter. The rise was primarily due to higher personnel costs.

As of Mar 31, 2018, total loans rose 1% sequentially to $221.6 billion. However, total deposits declined slightly to $264.7 billion.

Credit Quality: A Mixed Bag

Allowance for loan and lease losses increased 2% year over year to $2.60 billion. Also, provision for credit losses was $92 million, up 5% from $88 million in the prior-year quarter.

However, non-performing assets declined 9% to $2 billion. Further, net charge-offs fell 4% year over year to $113 million.

Capital Position Weakens

As of Mar 31, 2018, the Basel III common equity Tier 1 capital ratio, which became effective Jan 1, 2018, was 9.6% compared with 9.8% at Dec 31, 2017.

Share Repurchase

In the first quarter, PNC Financial repurchased 4.8 million common shares for $0.7 billion. Also, dividends of $0.4 billion were distributed.

Outlook

Second-Quarter 2018

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 in the range of $225-$275 million, excluding net securities and visa activity.

Non-interest expenses are expected to be up by 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. There have been five revisions lower for the current quarter.

VGM Scores

At this time, PNC has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. However, 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, PNC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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