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.