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PNC Financial (PNC) Beats Q4 Earnings; Revenues Up Y/Y


Riding on high revenues, The PNC Financial Services Group, Inc. PNC recorded positive earnings surprise of 5.9% in fourth-quarter 2016. Earnings per share of $1.97 significantly beat the Zacks Consensus Estimate of $1.86. Moreover, the bottom line increased 5.3% year over year.

Better-than-expected results were aided by rise in revenues. Also, continued growth in loans and deposits were among other positives. However, on the downside, the quarter recorded higher expenses.

The company reported net income of $1.05 billion in the reported quarter, up 2.9% year over year.

For full-year 2016, earnings per share were $7.30 per share, surpassing the Zacks Consensus Estimate of $7.19. However, earnings compared unfavorably with the prior-year figure of $7.39 per share.

Segment wise, on a year-over-year basis, the quarterly net income in Retail Banking, Corporate & Institutional Banking and Asset Management improved 7.5%, 7.1% and 7.8%, respectively. Residential Mortgage Banking recorded a net income as against net loss in the prior-year quarter.

However, net income in Non-Strategic Assets Portfolio and Other, including BlackRock segments, plunged 39.6% and 36.4%, respectively.

Improved Revenues, Costs High

For full-year 2016, the company reported revenues of $15.2 billion, slightly down on a year-over-year basis. Results were in line with the Zacks Consensus Estimate.

Total revenue for the quarter came in at $3.87 billion, inching up 1% year over year. The reported figure surpassed the Zacks Consensus Estimate of $3.86 billion.

Net interest income was up 2% year over year to $2.13 billion due to rise in core net interest income, partially offset by reduced purchase accounting accretion. Yet, net interest margin (NIM) contracted 1 basis point year over year to 2.69%.

Non-interest income was down 1% year over year to $1.74 billion. The decline was driven by lower other income, including net securities gains and corporate services.

PNC Financial’s non-interest expense was $2.44 billion, up 2% from the year-ago quarter. The quarter witnessed rise in marketing, occupancy, equipment-related and other expenses.

As of Dec 31, 2016, total loans were up 2% to $210.8 billion, supported by commercial lending. Also, total deposits grew 3% year over year to $257.2 billion.

Credit Quality Improved

PNC Financial’s credit quality reflected significant improvement in the reported quarter.

Non-performing assets dipped 2% year over year to $2.37 billion. Moreover, the allowance for loan and lease losses fell 5% year over year to $2.59 billion.

Further, net charge-offs declined 12% year over year to $106 million. Further, provision for credit losses was $67 million, down 9% from the prior-year quarter.

Strong Capital Position

As of Dec 31, 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 12.0% and 10.2%, respectively, compared with 12.0% and 10.1% in the prior-year quarter end.

Share Repurchase

In fourth-quarter 2016, PNC Financial repurchased 4.9 million common shares for $0.5 billion. For 2016, the company repurchased 22.8 million common shares for $2 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 look impressive.

However, PNC Financial’s margins will remain under pressure due to an absence, currently, of a significant rise in interest rates.

Currently, PNC Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, Bank of America Corporation BAC reported fourth-quarter 2016 earnings. Rise in trading revenue as well as mortgage banking fees led to earnings of 40 cents per share, which surpassed the Zacks Consensus Estimate of 38 cents. The figure was 48% higher than the prior-year quarter number.

Impressive growth in fixed income trading revenues, rebound in equity trading and significant rise in mortgage banking income supported revenues. However, as anticipated, investment banking fees declined due to lower advisory fees and equity underwriting fees. In addition, provision for credit losses recorded a fall as energy sector concerns seem to be over. Further, absence of legal costs and efficient expense management were sufficient to aid the bottom line.

Among other Wall Street giants, U.S. Bancorp USB is scheduled to report fourth-quarter 2016 earnings on Jan 18, while Comerica Inc. CMA will report on Jan 17.

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