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PNC Financial (PNC) Q4 Earnings Beat Estimates on Lower Costs

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Zacks Equity Research
·5 min read
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PNC Financial PNC pulled off fourth-quarter 2020 positive earnings surprise of 23% on prudent expense management. Earnings per share of $3.26 surpassed the Zacks Consensus Estimate of $2.65. Also, the bottom line was 9.8% higher than the prior-year level.

Decline in expenses and recapture of provisions came as tailwind. Also, capital position remained strong.

However, shares of PNC Financial tanked 1.8% in pre-market trading, which shows investors’ pessimism about the decline in revenues on lower interest income and fee income. Also, contraction of margin and fall in loans were undermining factors. A full day’s trading session will depict a better picture.

Net income in the fourth quarter jumped 5.4% year over year to $1.46 billion.

In full-year 2020, net income came in at $7.56 billion or $16.96 per share, up from the prior year’s $5.42 billion or $11.39 per share. Full-year earnings also outpaced the Zacks Consensus Estimate of $16.40.

Segment-wise, quarterly net income in Corporate & Institutional Banking and Retail banking climbed 21.3% and 53%, year over year, respectively. However, the Asset Management Group and Other segments registered decline of 9.9% and 63.5%, respectively.

Revenues and Loans Decline, Expenses Fall

In 2020, revenues were $16.9 billion, up slightly year over year. The top line also matched with the Zacks Consensus Estimate.

Total revenues in the reported quarter came in at $4.21 billion, down 3% year over year. The top line surpassed the Zacks Consensus Estimate of $4.14 billion.

Net interest income declined 3% from the year-ago quarter to $2.42 billion. The fall is attributable to lower yields on earning assets, partially offset by lower rates on deposits and borrowing costs and higher average earning assets. However, the net interest margin contracted 46 basis points to 2.32% due to lower yields on earning assets, partially muted by lower funding costs.

Non-interest income was down 3% year over year to $1.78 billion on lower service charges on deposits and other income. This was partially muted by higher asset management, corporate services and residential mortgage.

PNC Financial’s non-interest expenses totaled $2.71 billion, down 2% from the year-ago figure. This decline primarily resulted from the fall in marketing and equipment costs, partly offset by higher personnel expenses.

Efficiency ratio was 64%, stable year over year.

As of Dec 31, 2020, total loans were down 3% sequentially to $241.9 billion. However, total deposits improved 3% to $365.3 billion.

Credit Quality: A Mixed Bag

Non-performing assets increased 33% year over year to $2.34 billion. Also, allowance for loan and lease losses more than doubled to $5.36 billion.

However, the company reported provisions recapture of $254 million against provisions of credit losses of $221 million in the year-earlier quarter. Net charge-offs were $229 million, up 10%.

Steady Capital Position

As of Dec 31, 2020, the Basel III common equity Tier 1 capital ratio was 12.1% compared with 9.5% as of Dec 31, 2019.

Return on average assets and average common equity came in at 1.24% and 11.16%, respectively, compared with 1.33% and 11.54% witnessed in the prior-year quarter.

Share Repurchase

In mid-March, the company temporarily suspended share buybacks through the fourth quarter, following the “unprecedented challenge” from the coronavirus pandemic.

Our Viewpoint

PNC Financial displayed decent performance during the period under review. The company is well poised to grow on the back of its diverse revenue mix. It remains on track to execute its strategic goals, including technology initiatives, which bodes well for the long term. Also, controlled expenses are a tailwind.

With the gradual recovery of economic backdrop, the company’s provisions are reducing, which encouraging. However, a lower net interest margin due to low rates and declining loans balance are headwinds.

The PNC Financial Services Group, Inc Price, Consensus and EPS Surprise

The PNC Financial Services Group, Inc Price, Consensus and EPS Surprise
The PNC Financial Services Group, Inc Price, Consensus and EPS Surprise

The PNC Financial Services Group, Inc price-consensus-eps-surprise-chart | The PNC Financial Services Group, Inc Quote

Currently, PNC Financial carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other major banks, Goldman Sachs GS and Bank of America BAC will report their quarterly figures on Jan 19, while Morgan Stanley MS will report on Jan 20.

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