2Q22 First Look: Stronger Revenues, Improved Credit Fuels Upside
PNC reported 2Q22 EPS of $3.39. However, ex. items detailed in the table on page 3, we peg core EPS at $3.45, which exceeded our estimate of $3.00 and consensus of $3.13 (range: $2.92 – $3.34). The upside to our model on a core basis was broad-based reflecting higher revenue (both net interest income and fee revenues), a lower provision, and lower noninterest expenses.
All in, results were solid and matched the commentary/tone coming out of a recent investor conference. More specifically, broad-based loan growth exceeded our forecasts/ consensus, core fee income exceeded our forecasts (+capital markets, +cash/cash management, -other), credit metrics improved, fueling a lower-than-guided loan loss provision (LLR ex. PPP down 12 bp to 1.44%), core noninterest expenses were less than projected, and it generated positive operating leverage. Conversely, NIM expansion/NII growth fell modestly short of Street expectations (but exceeded our forecasts), deposit balances contracted more than forecast, and capital levels declined. Of note, TBV declined ~7% to $74.39, and it transferred $63.4 million of AFS securities to HTM in 2Q22 (HTM securities are now 60% of total securities vs. 15% in 1Q22).
Looking ahead, its 3Q22 outlook calls for:
(1) average loans up 1-2%;
(2) NII up 10-12%;
(3) fee income up 3-5%;
(4) revenue up 4-6%;
(5) noninterest expenses stable to up 1%; and
(6) NCOs of $125-175 million.
Additionally, its updated full-year 2022 outlook calls for: (
1) average loans up ~13% vs. 10% previously and period-end loans up ~8% vs. ~5% previously;
(2) reiterated revenue up 9-11%;
(3) reiterated core noninterest expenses up 4-6%; and
(4) an effective tax rate of ~19%.
The provision expense was well below expectations, core fee income was higher than forecast (+capital markets; +cash management), core noninterest expenses were lower than forecast, loan growth was stronger than expected, and credit trends remain benign.
The reported NIM and NII were below consensus (albeit above our forecast), deposits/ AEA declined more than anticipated, capital levels fell, and the reduction in AOCI contributed to a ~7% q/q decline in TBV.