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The PNC Financial Services Group (PNC) Up 9.6% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for The PNC Financial Services Group, Inc (PNC). Shares have added about 9.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is The PNC Financial Services Group due for a pullback? 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 drivers.

PNC Financial Q1 Earnings Beat Estimates, Costs Rise

PNC Financial’s first-quarter 2024 adjusted earnings per share of $3.36 surpassed the Zacks Consensus Estimate of $3.09. The adjusted figure excludes the impacts of expenses from the FDIC special assessment. In the prior-year quarter, the company reported earnings per share of $3.98.

Results were aided by a rise in deposit balances and an improvement in the company’s credit quality. However, an increase in non-interest expenses and lower NII were headwinds.

Net income was $1.3 billion, plunging 20.7% from the prior-year quarter.

Revenues Fall and Costs Rise

Total quarterly revenues were $5.15 billion, down 8.2% year over year. The top line missed the Zacks Consensus Estimate of $5.18 billion.

Quarterly NII was $3.26 billion, which declined 9% from the year-ago quarter. Net interest margin (NIM) decreased 27 basis points to 2.57%. Our estimate for NII and NIM was $3.32 billion and 2.61%, respectively.

Non-interest income fell 6.8% year over year to $1.88 billion. The downtick was due to the decline in income from residential and commercial mortgage fees. Our estimate was $1.88 billion.

Non-interest expenses totaled $3.33 billion, increasing marginally from the year-ago figure. The metric included a $130 million FDIC special assessment. Excluding the impact of the FDIC special assessment, non-interest expenses were $3.2 billion, decreasing 4% year over year.

The efficiency ratio was 65% compared with 59% in the year-ago quarter. A rise in the efficiency ratio reflects lower profitability.

As of Mar 31, 2024, total loans were $319.78 billion, which decreased slightly on a sequential basis. Our estimate for total loans was $324.6 billion. Nonetheless, total deposits increased nearly 1% from the end of the previous quarter to $425.62 billion. Our estimate for total deposits was $424.2 billion.

Credit Quality – Mixed Bag

The allowance for credit losses decreased nearly 1% to $5.36 billion. Non-performing loans increased 18.4% year over year to $2.38 billion.

Nonetheless, the company reported a provision for credit losses of $155 million in the first quarter, which decreased 34% from the year-earlier quarter. However, net loan charge-offs were $243 million, up 24.6% year over year.

Capital Position Improves & Profitability Ratios Weaken

As of Mar 31, 2024, the common equity tier 1 capital ratio was 10.1% compared with 9.2% as of Mar 31, 2023.

Return on average assets and average common shareholders’ equity were 0.97% and 11.39%, respectively, compared with 1.22% and 16.11% witnessed in the prior-year quarter.

Capital Distribution Activity

In the first quarter of 2024, PNC Financial returned $0.8 billion of capital to shareholders. This included more than $0.6 billion in common stock dividends and $0.1 billion in common share repurchases.

Outlook

Second-Quarter 2024

The outlook is relative to first-quarter 2024.

The company expects average loans to remain stable from first-quarter’s reported figure of $320.6 billion.

Management anticipates NII to decline approximately 1% from $3.26 billion reported in first-quarter 2024. Fee income is expected to rise 1-2% from $17.46 billion reported in first-quarter 2024. Other non-interest income (excluding Visa activity) is projected to be between $150 million-$200 million compared with $135 million reported in first-quarter 2024.

The company forecasts total revenues to remain stable from $5.14 billion reported in first-quarter 2024.

Adjusted non-interest expenses are envisioned to increase 2-4% from $3.2 billion reported in first-quarter 2024.

Net charge-offs are estimated between $225 million and $275 million compared with first-quarter 2024 reported figure of $243 million.

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Full-year 2024

Average loans are expected to be up around 1% from $323.5 billion in 2023.

Management suggests the top line to be stable to down 2% from $21.49 billion reported in the 2023. NII is anticipated to decline 4-5% from $13.91 billion. Non-interest income is projected to be up 4-6% from $7.57 billion reported in 2023.

The company is expecting capital markets and advisory fee income to increase 20%.

Management is projecting deposits to decline in mid-single digits range.

Adjusted non-interest expenses (excluding FDIC assessment fees) are forecasted to be stable from the reported figure of $13.34 billion in 2023.

The effective tax rate is estimated to be 18.5%, whereas the company reported 16.2% in 2023.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, The PNC Financial Services Group has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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

Performance of an Industry Player

The PNC Financial Services Group belongs to the Zacks Banks - Major Regional industry. Another stock from the same industry, Citigroup (C), has gained 10.4% over the past month. More than a month has passed since the company reported results for the quarter ended March 2024.

Citigroup reported revenues of $21.1 billion in the last reported quarter, representing a year-over-year change of -1.6%. EPS of $1.58 for the same period compares with $1.86 a year ago.

For the current quarter, Citigroup is expected to post earnings of $1.43 per share, indicating a change of +4.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.1% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Citigroup. Also, the stock has a VGM Score of F.

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The PNC Financial Services Group, Inc (PNC) : Free Stock Analysis Report

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