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Raymond James: The PNC Financial Services Group – Market Perform

Posted on July 18, 2022July 18, 2022 By alanyeo No Comments on Raymond James: The PNC Financial Services Group – Market Perform

2Q22 First Look: Stronger Revenues, Improved Credit Fuels Upside

Event:

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.

Bottom line:

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%.

Key positives:

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.

Key negatives:

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.

PNCClick here to Download Full Report in PDF

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Earnings Updates/ Corporate Actions, Research - Equities Tags:The PNC Financial Services Group

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