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PNC Financial (PNC) Q1 Earnings Beat on Decline in Provisions

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PNC Financial (PNC - Free Report) pulled off first-quarter 2021 positive earnings surprise of 49.1% on substantial reserves release. Earnings per share of $4.10 surpassed the Zacks Consensus Estimate of $2.75. Also, the bottom line compared favorably with $1.59 in the prior-year quarter.

Recapture of provisions and fee income growth on higher asset management revenues came as tailwinds. However, higher expenses and decline in revenues on lower interest income were the offsetting factors. Also, contraction of margin and fall in loans were negatives.

Net income in the first quarter came in at $1.83 billion compared with $915 million in the prior-year quarter.

Segment-wise, quarterly net income in Corporate & Institutional Banking and Retail banking climbed significantly, year over year. Also, the Asset Management Group registered growth of 83%. However, income at Other segment declined 59%.

Revenues and Loans Decline, Expenses Rise

Total revenues in the reported quarter came in at $4.22 billion, down 3% year over year. The top line surpassed the Zacks Consensus Estimate of $4.13 billion.

Net interest income declined 6% from the year-ago quarter to $2.35 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 57 basis points to 2.27% due to lower yields on securities and loans, partially muted by lower funding costs.

Non-interest income was up 3% year over year to $1.87 billion on higher asset management, corporate and consumer services revenues. This was partially muted by lower service charges on deposits and residential mortgage.

PNC Financial’s non-interest expenses totaled $2.57 billion, up 1% from the year-ago figure. This rise primarily resulted from higher personnel, equipment and occupancy costs.

Efficiency ratio was 61% compared with 59% in the year-ago quarter. Higher efficiency ratio indicates lower profitability.

As of Mar 31, 2021, total loans were down 2% sequentially to $237 billion. However, total deposits improved 3% to $375.1 billion.

Credit Quality: A Mixed Bag

Non-performing assets increased 24% year over year to $2.18 billion. Also, allowance for loan and lease losses climbed 20% to $4.71 billion.

However, the company reported provisions recapture of $551 million against provisions for credit losses of $914 million in the year-earlier quarter. Net charge-offs were $146 million, down 31%.

Steady Capital Position

As of Mar 31, 2021, the Basel III common equity Tier 1 capital ratio was 12.6% compared with 9.4% as of Mar 31, 2020.

Return on average assets and average common equity came in at 1.58% and 14.31%, respectively, compared with 0.89% and 7.51% witnessed in the prior-year quarter.

Share Repurchase

In the first quarter of 2021, PNC Financial returned capital to shareholders through dividends on common shares of $0.5 billion. The company has suspended repurchasing shares up to the close of BBVA USA transaction.

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 is encouraging. However, a lower net interest margin due to low rates and declining loans balance are headwinds.

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.

Performance of Other Banks

Truist Financial’s (TFC - Free Report) first-quarter 2021 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.12. Results excluded restructuring and BB&T-SunTrust Banks merger-related charges, and incremental operating expenses related to the merger. Compared with the previous quarter, the bottom line improved 42%.

U.S. Bancorp (USB - Free Report) reported first-quarter 2021 earnings per share of $1.45, which surpassed the Zacks Consensus Estimate of 95 cents. The bottom line compared favorably with the prior-year quarter’s figure of 72 cents.

First Republic Bank (FRC - Free Report) delivered an earnings surprise of 16.2% in first-quarter 2021 on solid top-line strength. Earnings per share of $1.79 surpassed the Zacks Consensus Estimate of $1.54. Additionally, the bottom line climbed 53.1% from the year-ago quarter.

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