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PNC Financial (PNC) Tops Q3 Earnings, Expenses High


The PNC Financial Services Group, Inc.’s PNC third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. However, the bottom line declined 3% year over year.

Better-than-expected results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives. However, on the downside, the quarter recorded higher expenses and provisions.

The company reported net income of $1.01 billion in the reported quarter, down 6% year over year.

Segment-wise, on a year-over-year basis, the quarterly net income in Corporate & Institutional Banking and Asset Management improved 7% and 32%, respectively. Residential Mortgage Banking recorded a net income as against net loss in the prior-year quarter.

However, net income in Retail Banking, Non-Strategic Assets Portfolio and Other, including BlackRock segments, plunged 11%, 21%, 48% and 43%, respectively.

Improved Revenues, Costs and Provisions High

Total revenue for the quarter came in at $3.83 billion, increasing 1% year over year. The reported figure was almost at par with the Zacks Consensus Estimate.

Net interest income inched up 1% year over year to $2.10 billion due to rise in core net interest income, partially offset by reduced purchase accounting accretion. Further, net interest margin (NIM) expanded 1 basis point year over year to 2.68%.

Non-interest income was up 1% year over year to $1.73 billion. The rise was driven by several fee income categories, including residential mortgage, asset management, consumer services and service charges on deposits. However, this growth was partially offset by lower other income, including net securities gains.

PNC Financial’s non-interest expense was $2.39 billion, up 2% from the prior-year quarter. The quarter witnessed rise in marketing, personnel, occupancy and equipment-related expenses.

As of Sep 30, 2016, total loans were up 3% to $210.4 billion, supported by commercial lending. Also, total deposits grew 6% year over year to $259.9 billion.

Mixed Credit Quality

PNC Financial’s credit quality was a mixed bag in the reported quarter.

Non-performing assets fell 5% year over year to $2.38 billion. Moreover, the allowance for loan and lease losses dropped 19% year over year to $2.62 billion.

However, net charge-offs surged 60% year over year to $154 million. Further, provision for credit losses was $87 million, up 7% from the prior-year quarter.

Strong Capital Position

As of Sep 30, 2016, the transitional Basel III common equity Tier 1 capital ratio was 10.6%, stable year over year. Tier 1 risk-based capital ratio and leverage ratio were 11.9% and 10.1%, respectively, compared with 12.0% and 10.2% in the prior-year quarter end.

Share Repurchase

In third-quarter 2016, PNC Financial repurchased 5.9 million common shares for $0.5 billion.

Our Viewpoint

We believe that PNC Financial is well positioned to grow, given its diverse revenue mix, balance-sheet strengthening efforts and strong capital levels. An increase in lending activities augurs well for the company. Moreover, PNC Financial’s capital-deployment activities are impressive.

However, PNC Financial’s margins will remain under pressure due to absence of significant rise in interest-rate environment.

PNC FINL SVC CP Price, Consensus and EPS Surprise

PNC FINL SVC CP Price, Consensus and EPS Surprise | PNC FINL SVC CP Quote

The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Performance of Other Banks

Among major banks, JPMorgan Chase & Co.’s JPM third-quarter 2016 earnings of $1.58 per share handily surpassed the Zacks Consensus Estimate of $1.40. However, the figure reflects a 6% decline from the year-ago period. Notably, the results included a legal benefit of $71 million.

Driven by decline in operating expenses, Citigroup Inc. C delivered a positive earnings surprise of nearly 8% in third-quarter 2016. The company’s earnings from continuing operations per share of $1.25 for the quarter outpaced the Zacks Consensus Estimate of $1.16. However, earnings compared unfavorably with the year-ago figure of $1.36 per share.

Buoyed by a strong top-line growth, Wells Fargo & Company’s WFC third-quarter 2016 earnings recorded a positive surprise of about 1%. Earnings of $1.03 per share beat the Zacks Consensus Estimate by a penny. However, it compared unfavorably with the prior-year quarter’s earnings of $1.05 per share.

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