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PNC Financial (PNC) Beats on Q1 Earnings, Costs Increase

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Riding on high revenues, The PNC Financial Services Group, Inc. (PNC - Free Report) recorded a positive earnings surprise of 6.5% in first-quarter 2017. Earnings per share of $1.96 significantly beat the Zacks Consensus Estimate of $1.84. Moreover, the bottom line increased 16.7% year over year. Earnings for the reported quarter include the effect of deferred issuance costs of 4 cents per share.

Continued growth in loans and deposits helped the company earn higher revenues during the quarter. However, this was partially offset by an increase in expenses.

The earnings beat led to positive investor sentiments, helping the stock gain nearly 1.9% in the pre-market trading.

The company reported net income of $1.07 billion in the reported quarter, up 14% year over year.

 

 

Segment wise, on a year-over-year basis, the quarterly net income in Corporate & Institutional Banking and Other, including BlackRock, improved 22% and 30%, respectively.

However, net income in Retail Banking and Asset Management segments plunged 12% and 4%, respectively.

Increased Revenues More than Offset Higher Expenses

Total revenue for the quarter came in at $3.88 billion, rising 6% year over year. The reported figure surpassed the Zacks Consensus Estimate of $3.77 billion.

Net interest income was up 3% year over year to $2.16 billion due to higher loan and securities balances. Also, net interest margin increased 2 basis points year over year to 2.77%.

Non-interest income was up 10% year over year to $1.72 billion, driven by higher corporate services, asset management and residential mortgage.

PNC Financial’s non-interest expenses were $2.40 billion, up 5% from the year-ago quarter. The quarter witnessed rise in marketing, personal and equipment-related expenses.

As of Mar 31, 2017, total loans were up 3% to $212.8 billion, supported by commercial lending. Also, total deposits grew 4% year over year to $260.7 billion.

Credit Quality Improves

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

Non-performing assets declined 13% year over year to $2.21 billion. Moreover, the allowance for loan and lease losses fell 6% year over year to $2.56 billion.

Net charge-offs declined 21% year over year to $118 million. Further, provision for credit losses was $88 million, down 42% from $152 million in the prior-year quarter.

Capital Ratios Decline

As of Mar 31, 2017, the transitional Basel III common equity Tier 1 capital ratio was 10.5%, down one basis point year over year. Tier 1 risk-based capital ratio and leverage ratio were 11.8% and 9.9%, respectively, compared with 11.9% and 10.2% at the prior-year quarter end.

Share Repurchase

In first-quarter 2017, PNC Financial repurchased 5.0 million common shares for $0.6 billion.

Our Viewpoint

We believe that PNC Financial is well positioned to grow, given its diverse revenue mix, balance-sheet strengthening efforts and improving credit quality. Further, an increase in lending activities augurs well for the company. Easing margin pressure due to rising interest rates should continue to support its top line.

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.

Meanwhile, Citigroup Inc. (C - Free Report) reported first-quarter 2017 earnings. It delivered a positive earnings surprise of 8.9%, riding on higher revenues. The company’s earnings per share of $1.35 for the quarter outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10 per share. Notably, results exclude one-time adjustments of 1 cent.

Among other Wall Street giants, U.S. Bancorp (USB - Free Report) is scheduled to report first-quarter 2017 earnings on Apr 19 while Comerica Inc. (CMA - Free Report) will report on Apr 18.

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