PNC Financial Services Group Inc (NYSE: PNC) stock lost over 3.1% on April 13th, 2018 (as of 2:35 PM GMT-4;; Source: Google finance) as their average loan growth was modestly weaker than they expected in the first quarter of 2018.
Average loan growth was weaker than forecasted, despite spot loans rising $1.2 billion. Multifamily agency warehouse lending lost during the first quarter within C&IB’s real estate business, as these balances tend to fluctuate pretty broadly.
Their Basel III common equity Tier 1 ratio was estimated to be 9.6%, falling 20 basis points from December 31, 2017 due to accumulated other comprehensive income as a result of the impact of higher interest rates on available for sale securities.
Moreover, pricing and structure in the commercial real estate space has been aggressive leading to a weaker new volumes. The underlying trends in their loan portfolios has been positive, while the movement in rates hurt them during the quarter.
The group benefited from a higher loan yields leading to a rise in Fed funds and one-month LIBOR. Their funding cost improved driven by higher deposit pricing and as betas continued to move higher. The sharp rise in three-month LIBOR relative to one-month LIBOR led their cost of borrowed funds to improve more than we expected. They continue to execute well against their strategic priorities and plans to tap new opportunities as the year unfolds.
On the performance side, the total loans were flat but spot loans rose by $1.2 billion since year-end. Moreover, $600 million of money market mutual fund securities were reclassified to equity investments. Their balances at the Federal Reserve were $25.4 billion during the first quarter, which was a flat linked-quarter and rose $1.7 billion year-over-year. On the liability side, the total deposits lost over $800 million against the fourth quarter on the back of seasonal activity primarily on the commercial side. Deposits rose by $5.7 billion or 2% on a yoy basis. The Average common shareholders equity rose over $300 million linked-quarter. The group returned $1.1 billion of capital to shareholders or 96% of first quarter net income through repurchases of 4.8 million common shares for $747 million and dividends of $362 million.