PNC Financial report first quarter earnings before the market Friday along with JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC). PNC fared better than other major regionals in March. Investors will be looking for signs of asset quality deterioration risk for PNC Financial Services Group, Piper Sandler analysts warn. Consensus sees the bank setting aside an additional $308 million in loan-loss provisions in the first quarter, compared to the $208 million released in the same period a year ago.
PNC Financial Services Group Inc NYSE: PNC · Report Before Open Friday
PNC Earnings Preview
Q1 2023 earnings before the bell; conference call at 10 a.m. ET Friday
- Projected EPS: $3.68
- Projected revenue: $5.62 billion
- Consensus sees PNC setting aside an additional $308 million in loan-loss provisions in the first quarter, compared to the $208 million released in the same period a year ago.
PNC is expected to hold up well to heightened scrutiny over bank deposits; according to data compiled by Bloomberg, the rate of funds leaving PNC’s balance sheet quarter-on-quarter is expected to slow to less than a percentage point, compared to about 1.5% a year ago. PNC’s ability to rein in expenses will also be assessed in its pre-open earnings report, with consensus seeing non-interest costs rise by about 6% from a year ago, the first increase in three quarters.
Redd Brown and Gabriel Sanchez Bloomberg April 6, 2023
Analysts Outlook on Banks
KBW
KBW reduced its earnings estimates for banks across the board by 8% for 2023 and 11% in 2024,
“Bank stock performance around 1Q23 earnings will likely be dictated by relative balance sheet performance (deposits, liquidity and capital),” KBW said.
Morningstar– Eric Compton, CFA Apr 5, 2023
“Although we believe the U.S. banking sector as a whole is currently undervalued, the three banks that we think most deserve investor focus in the lead-up to first-quarter earnings are Comerica CMA, U.S. Bancorp USB, and Citigroup C. Each has its own risk/reward setup.
We believe the biggest risks to our top picks would be negative surprises on deposit bases or funding costs, or the realization of a recession in the near term. While we think the U.S. banks are already trading at recessionary valuations, an actual recession would be unlikely to help valuations in the short term.”
Piper Sandler
Signs of asset quality deterioration are a risk for PNC Financial Services Group (PNC US), Piper Sandler analysts warn. Consensus sees the bank setting aside an additional $308 million in loan-loss provisions in the first quarter, compared to the $208 million released in the same period a year ago.
Yet PNC is expected to hold up well to heightened scrutiny over bank deposits; according to data compiled by Bloomberg, the rate of funds leaving PNC’s balance sheet quarter-on-quarter is expected to slow to less than a percentage point, compared to about 1.5% a year ago. PNC’s ability to rein in expenses will also be assessed in its pre-open earnings report, with consensus seeing non-interest costs rise by about 6% from a year ago, the first increase in three quarters.
Wedbush
“1Q earnings will likely be pressured, in our view, as we see banks shift towards a more defensive and conservative stance, and we anticipate a slew of downward revisions to guidance,” Wedbush analysts said in a March 29 research note. “We expect loan growth to slow from the strong pace over the prior few quarters as demand cools in light of higher rates and the uncertain economic environment.”
Higher rates increase margins but there is a cost as Regional Banks Discovered …..
Understandably there is a crisis of confidence in regional banks sparked off by last month’s collapse of Silicon Valley Bank. We warned last quarter higher interest rates from the Federal Reserve’s aggressive rate hiking revenues are expected to rise from a year earlier. To that we warned of the downside, what we didn’t know is how poorly the regional banks were managed. Silicon Valley and Signature Banks will be taught in economic classes along with Enron, South Sea Bubble and Worldcom in business and economic classes.
“US bank lending contracted by the most on record in the last two weeks of March, indicating a substantial tightening of credit conditions in the wake of several high-profile bank collapses… Commercial bank lending dropped nearly $105 billion in the two weeks ended March 29, the most in Federal Reserve data back to 1973. The more than $45 billion decrease in the latest week was primarily due to a drop in loans by small banks… Friday’s report also showed commercial bank deposits dropped $64.7 billion in the latest week, marking the 10th-straight decrease that mainly reflected a decline at large firms… The Fed’s report showed that by bank size, lending decreased $23.5 billion at the 25 largest domestically chartered banks in the latest two weeks, and plunged $73.6 billion at smaller commercial banks over the same period.” April 7 – Bloomberg (Alexandre Tanzi)
Net interest income (NII) widened as the net interest margin widened, simply the gap has widened the gap between what the big commercial banks pay depositors and what they earn lending money out. The Federal Deposit Insurance Corp said the margin increased the most on a quarterly basis in the third quarter, and in Q4 banks continued to grow their loan books, particularly commercial and industrial and credit-card loans. It is expected that NII continued to be the primary driver of performance during last year’s fourth quarter.
However, there is a price for this, the clearest is the housing market which with the collapse in affordability through higher rates and inflation has dropped off dramatically ion activity. For banks this means the fee income from home lending has fallen right off.
About PNC
BBVA and BlackRock
In the second quarter of 2020 PNC sold their passive equity stake in BlackRock. In November, announced their plan to redeploy those proceeds to acquire BBVA USA. PNC in November said it would acquire the U.S. banking operations of Spain’s BBVA for $11.6 billion cash, making it the biggest regional bank by assets under management in the U.S. The transaction closed June 1, 2021, and increased PNC’s total assets by an estimated $102 billion, creating the fifth largest bank by assets.
The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.
Source: PNC Earnings Release
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