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PNC Financial (PNC) Q4 Earnings Top Estimates, Costs Flare Up

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Riding on high revenues, PNC Financial (PNC - Free Report) reported a positive earnings surprise of 1.7% in fourth-quarter 2019. Earnings per share of $2.97 surpassed the Zacks Consensus Estimate of $2.92. Further, the bottom line reflects an 8% jump from the prior-year quarter’s reported figure.

Higher revenues, driven by higher net interest income and escalating fee income, aided the company’s results. However, rise in costs and provisions were headwinds. Moreover, lower net interest margin was another concern.

The company’s net income for the quarter came in at $1.38 billion compared with the prior-year quarter’s $1.35 billion.

For full-year 2019, earnings per share came in at $11.39 per share, surpassing the Zacks Consensus Estimate of $11.34. Also, earnings compared favorably with the prior-year figure of $10.71 per share.

Segment wise, quarterly net income in Corporate & Institutional Banking and Retail banking decreased 0.3% and 11.5%, year on year, respectively. However, the Other, including the BlackRock segment, reported 5.5% rise in net income, while in Asset Management Group segment, net income more than doubled.

High Revenues Recorded, Partly Muted by Elevated Costs

For full-year 2019, the company reported revenues of $17.8 billion, up 4.1% on a year-over-year basis. The revenue figure, however, lagged the Zacks Consensus Estimate of $17.9 billion.

Total revenues for the reported quarter came in at $4.6 billion, climbing 6% year over year. Additionally, the top-line figure surpassed the Zacks Consensus Estimate of $4.5 billion.    

Net interest income jumped slightly from the year-ago quarter to $2.5 billion. Increased loan and securities balances and lower borrowing costs were mostly mitigated by reduced loan and securities yields, along with growth in deposit and borrowing balances. Yet, net interest margin contracted 18 basis points to 2.78% due to lower yields on earning assets, partially muted by lower borrowing costs.

Non-interest income was up 14% year over year to $2.1 billion, owing to higher consumer and corporate services income, asset management income, residential mortgage and other income. This was partially muted by lower income from service charges on deposits.

PNC Financial’s non-interest expenses totaled $2.8 billion, flaring up 7% from the year-ago figure. This upsurge primarily stemmed from rise in almost all components of expenses, partly negated by lower marketing costs.

As of Dec 31, 2019, total loans were up 1% sequentially to $239.8 billion. Also, total deposits improved 1% to $288.5 billion.

Credit Quality: A Mixed Bag

Credit metrics were mixed in the fourth quarter. Non-performing assets were down 3% to $1.75 billion, year over year. Net charge-offs surged 95% to $209 million.

Provision for credit losses escalated 49% from the prior-year quarter to $221 million. In addition, allowance for loan and lease losses was up 4% to $2.7 billion.

Steady Capital Position

As of Dec 31, 2019, the Basel III common equity Tier 1 capital ratio, effective Jan 1, 2018, was 9.5% compared with 9.6% as of Dec 31, 2018.

Share Repurchase

For 2019, PNC Financial repurchased 25.9 million common shares for $3.5 billion and paid $1.9 billion as dividends. Notably, during the October-December quarter, the company repurchased 6.5 million common shares for $1 billion. Furthermore, dividends of $0.5 billion were distributed.

Our Viewpoint

PNC Financial displayed an impressive performance during the December-end quarter. An improving lending scenario is likely to support its top line in the upcoming period. Moreover, 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.

Rise in expenses and provisions, nevertheless, remain concerns. In addition, lower net interest margin is a headwind.

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.

Performance of Other Major Banks

Citigroup (C - Free Report) delivered a positive earnings surprise of 4.4% in fourth-quarter 2019, backed by revenue strength. Adjusted earnings per share of $1.90 for the quarter handily outpaced the Zacks Consensus Estimate of $1.82. Including one-time gain, net income was $5 billion or $2.15 per share compared with the $4.3 billion or $1.64 per share recorded in the prior-year quarter.

Citigroup recorded higher revenues on consumer banking, investment banking and market revenues during the quarter. Though equity market revenues disappointed on a more challenging environment in derivatives, fixed income revenues were on an upswing. These apart, investment banking revenues increased on strong underwriting business, partly muted by lower advisory business. Further, loans escalated. However, rise in expenses was on the downside. Moreover, cost of credit soared.

Wells Fargo’s (WFC - Free Report) fourth-quarter adjusted earnings of 93 cents per share lagged the Zacks Consensus Estimate of $1.12 on lower net interest income and rise in expenses. Results exclude litigation accruals. Including litigation accruals (not tax-deductible) worth 33 cents per share related to certain matters, earnings came in at 60 cents per share compared with the prior-year quarter’s $1.21.

Reduced net interest income on lower rates and rise in expenses negatively impacted the results. Additionally, provisions soared. However, higher fee income, driven by improved mortgage banking business, was on the upside. Furthermore, escalation in loans and deposits acted as tailwinds.

Better-than-expected trading performance and rise in mortgage banking fees drove JPMorgan’s (JPM - Free Report) fourth-quarter earnings of $2.57 per share, handily outpacing the Zacks Consensus Estimate of $2.32. Lower interest rates drove mortgage banking fees. Further, as expected, both equity and debt underwriting fees improved, rising 10% and 11%, respectively. Thus, this resulted in an increase in investment banking fees (up 5%) despite a 3% fall in advisory fees.

Also, fixed income markets revenues surged 86%, given a favorable comparison against a soft prior-year quarter performance and strong client activity across products. Likewise, equity markets revenues grew 15% driven by strong equity markets performance.

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