PNC Financial Q2 Earnings Beat on High Non-Interest Income - Analyst Blog
The PNC Financial Services Group, Inc. PNC reported yet another impressive quarter with an earnings surprise of 6.2%. The company’s second-quarter 2015 earnings per share of $1.88 outpaced the Zacks Consensus Estimate of $1.77. Also, the reported figure compared favorably with $1.85 earned in the prior-year quarter.
The PNC Financial Services Group Inc. - Earnings Surprise | FindTheBest
Results were primarily driven by a rise in non-interest income and fall in the provision for credit losses, which were, however, partially offset by higher expenses and lower net interest income. Further, enhanced credit quality acted as a positive during the quarter. Also, loan and deposit balances exhibited growth.
The company reported net income of $1.04 billion in the reported quarter, slightly down from $1.05 billion in the year-ago quarter.
Furthermore, segment-wise, on a year-over-year basis, quarterly net income in Retail Banking, Corporate & Institutional Banking and Asset Management Group increased 7%, 8%, 17%, respectively. On the other hand, net income in Residential Mortgage Banking, Non-Strategic Assets Portfolio and Other, including BlackRock segments declined 47%, 43% and 7%, respectively.
Quarter in Detail
Total revenue for the quarter came in at $3.87 billion, up 1% year over year. The increase primarily reflects growth in non-interest income on the back of client activity, partially offset by lower net interest income. Also, total revenue came above the Zacks Consensus Estimate of $3.78 billion.
Net interest income was $2.05 billion, down 4% year over year. The fall was mainly due to lower core net interest income and reduced purchase accounting accretion. Moreover, net interest margin decreased 39 basis points (bps) year over year to 2.73%.
Non-interest income climbed 8% year over year to $1.81 billion. The rise was mainly due to increased customer activity resulting in higher corporate service fees, consumer services and asset management revenue.
PNC Financial’s non-interest expense stood at $2.37 billion, up 2% from the prior-year quarter. The rise was mainly due to investments in technology and business infrastructure and higher compensation costs related to increased business activity.
As of Jun 30, 2015, total loans were $205.15 billion, up 2% year over year, primarily reflecting growth in commercial lending. Further, total deposits increased 8% from the prior-year quarter to $239.70 billion. Total client assets increased 2% year over year to $262 million.
Credit Quality
PNC Financial’s overall credit quality improved in the said quarter. Provision for credit losses was $46 million, down 36% year over year. Nonperforming assets fell 19% year over year to $2.58 billion.
Moreover, the allowance for loan and lease losses to total loans was 1.59% as of Jun 30, 2015, decreasing 13 bps from the prior-year quarter. Also, net charge-offs fell 54% year over year to $67 million.
Capital Position
As of Jun 30, 2015, the transitional Basel III common equity Tier 1 capital ratio and Tier 1 risk-based capital ratio was 10.6% and 12.0%, as against 11.0% and 12.7% as of Jun 30, 2014.
Share Repurchase
In second-quarter 2015, PNC Financial repurchased 5.9 million common shares for $0.6 billion. Notably, the company executed the share buyback according its share repurchase programs of up to $2.875 billion for the five quarter period starting in the second-quarter of 2015.
Our Viewpoint
Results of PNC Financial reflect a decent quarterly performance. We believe that PNC Financial is well positioned to grow, given its diverse revenue mix, balance-sheet strengthening efforts, improving credit quality, strategic acquisitions and steady capital levels. An increase in lending activities augurs well for the company. Moreover, PNC Financial’s capital deployment activities are impressive as the company continues to enhance shareholder value with its share buyback program and increasing dividend payment.
However, the continued low interest-rate environment would keep PNC Financial’s margins under pressure. The stock currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
Banking majors – Wells Fargo & Company WFC and JPMorgan Chase & Co. JPM kick-started the second-quarter earnings.
Impacted by higher expenses and reduced mortgage banking income, Wells Fargo reported earnings of $1.03 per share in second-quarter 2015, missing the Zacks Consensus Estimate by a penny. However, results were above the year-ago quarter earnings of $1.01 per share. JPMorgan came up with earnings of $1.54 per share, crushing the Zacks Consensus Estimate of $1.44. The bottom line also improved 5.5% over the year-ago earnings of $1.46 per share.
Among others, Citigroup Inc. C is slated to report results on Jul 16, 2015.
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