PNC Beats 3Q Estimates On ‘Significantly’ Lower Provisions

PNC Financial Services reported better-than-expected 3Q earnings aided by a ‘significant’ decline in the provisions for credit losses. PNC’s provision for credit losses came down to $52 million in 3Q as compared to $183 million in the year-ago period. Moreover, it was significantly lower than the 2Q provisions of $2.46 billion.

PNC’s (PNC) earnings of $3.39 per share on revenues of $4.3 billion came ahead of analysts’ estimates of earnings of $2.12 per share and revenues of $4 billion. Earnings and revenues both increased by 15.3% and 4.7%, respectively, on a year-over-year basis.

The financial services giant PNC said net interest income dropped 1% year-over-year “due to lower yields on earning assets partially offset by lower rates on deposits and borrowings and higher average earning assets.” Non-interest income, however, grew 3% year-over-year. The net interest margin declined to 2.39% in 3Q from 2.84% in the year-ago period.

PNC’s CEO Bill Demchak said “Noninterest income increased, expenses were well managed and we continued to generate positive operating leverage. Deposits grew while loans declined as a result of lower commercial loan utilization rates, despite growth in loan commitments.” He added that “We have substantial capital and liquidity flexibility, and remain well-positioned to take advantage of potential investment opportunities to enhance shareholder value.” (See PNC stock analysis on TipRanks).

Following the results, Raymond James analyst Michael Rose increased his EPS estimates but maintained a Hold rating. He said “we continue to view risk-reward as balanced where more favorable credit trends are counterbalanced by pretax, pre-provision (PTPP) income growth challenges and a P/TBV multiple that is roughly in line vs. peers when compared to historical averages.”

Rose added that “the company stands well positioned from a loss absorption perspective with the ability to deploy the excess capital generated from the recent sale of its stake in BlackRock via both organic and inorganic means.”

Currently, the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 5 Buys, 5 Holds and 2 Sells. The average price target of $117.14 implies upside potential of about 6.7% to current levels. Shares have dropped by 31.2% year-to-date.

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