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PNC Financial (PNC) Beats Q4 Earnings Estimates, Costs Up

Zacks Equity Research

Riding on higher revenues, The PNC Financial Services Group, Inc. PNC reported a positive earnings surprise of 4.1% in fourth-quarter 2017. Adjusted earnings per share of $2.29 beat the Zacks Consensus Estimate of $2.20. Moreover, the bottom line reflected a 16.2% increase from the prior-year quarter.

Continued easing of pressure on net interest margin supported the company’s higher net interest income during the quarter. Also, non-interest income witnessed year-over-year growth. However, higher expenses hurt results to some extent. Further, deterioration in credit quality was a headwind.

After considering the benefit from tax legislation of $1.13 billion and charges of other significant items, the company reported net income of $2.09 billion in the fourth quarter.

For full-year 2017, earnings per share were $10.36 per share, surpassing the Zacks Consensus Estimate of $8.39. Also, earnings compared favorably with the prior-year figure of $7.30. For full-year 2017, net income of $5.39 billion was reported, up 35.2% year over year.

Segment wise, on a year-over-year basis, quarterly net income at Corporate & Institutional Banking and Asset Management improved 71.9% and 1.2%, respectively. Also, net income for Other, including the BlackRock segment increased 3.6% year over year. However, the Retail Banking segment reported a net loss of $145 million against net income of $228 million in prior-year quarter.

Revenue Growth Offsets Higher Expenses

For full-year 2017, the company reported revenues of $16.3 billion, up 7.7% on a year-over-year basis. Results were in line with the Zacks Consensus Estimate.

Total revenues for the quarter came in at $4.26 billion, rising 10% year over year. The reported figure surpassed the Zacks Consensus Estimate of $4.17 billion.

Net interest income was up 10% year over year to $2.35 billion. Also, net interest margin increased 19 basis points year over year to 2.88%.

Non-interest income was up 10% year over year to $1.92 billion, driven by higher asset management income, consumer services income, service charges on deposits and other income, partially offset by lower income from residential mortgage.

PNC Financial’s non-interest expenses were $3.06 billion, increasing 25% from the year-ago quarter. The quarter witnessed rise in all components of expenses.

As of Dec 31, 2017, total loans were slightly down sequentially to $220.5 billion. Also, total deposits rose 2% to $265.1 billion.

Credit Quality: A Mixed Bag

Allowance for loan and lease losses increased 1% year over year to $2.61 billion. Further, net charge-offs climbed 16% year over year to $123 million. Also, provision for credit losses was $125 million, up 87% from $67 million in the prior-year quarter.

However, non-performing assets declined 14% year over year to $2.04 billion.

Capital Position Weakens

As of Dec 31, 2017, the transitional Basel III common equity Tier 1 capital ratio was 10.4%, down from 10.6% a year ago. Tier 1 risk-based capital ratio and leverage ratio were 11.6% and 9.9%, respectively, compared with 12% and 10.1% at the prior-year quarter end.

Share Repurchase

In the fourth quarter, PNC Financial repurchased 3.7 million common shares for $0.5 billion. For 2017, the company repurchased 18.6 million common shares for $2.3 billion.

Our Viewpoint

PNC Financial is well positioned to grow based on its diverse revenue mix. Margin improvement, due to rising interest rates, is likely to continue supporting its top line. The company remains on track to execute its strategic goals, including technology initiatives and the expansion of middle market franchise into new markets.

PNC Financial Services Group, Inc. (The) Price and EPS Surprise

PNC Financial Services Group, Inc. (The) Price and EPS Surprise | PNC Financial Services Group, Inc. (The) Quote

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

Among other Wall Street giants, Comerica CMA and Citigroup C are scheduled to report fourth quarter and 2017 earnings on Jan 16 while Bank of America Corporation BAC will report on Jan 17.

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