PNC Financial (PNC) Q3 Earnings Beat, Provisions Decline
PNC Financial PNC pulled off third-quarter 2020 positive earnings surprise of 62% on prudent expense management. Earnings per share of $3.39 surpassed the Zacks Consensus Estimate of $2.09. Also, the figure was 15% higher than the prior-year level.
Shares of PNC Financial gained 1.5% in pre-market trading as investors reacted positively to the decline in expenses and lower provisions. A full day’s trading session will depict a better picture.
Moreover, decent fee income aided revenue growth. However, a lower net interest margin and decrease in loans were undermining factors.
Segment-wise, quarterly net income in Corporate & Institutional Banking and Retail banking climbed 4% and 53%, year over year, respectively. Further, the Other segment reported a 69% rise in net income, while the Asset Management Group segment registered a whopping 98% growth.
Fee Income Aids Revenues, Loans Decline, Expenses Fall
Total revenues for the reported quarter came in at $4.28 billion, up 1% year over year. The top line surpassed the Zacks Consensus Estimate of $3.97 billion.
Net interest income declined 1% from the year-ago quarter to $2.48 billion. The fall is attributable to lower yields on earning assets, partially offset by lower rates on deposits and borrowings and higher average earning assets. However, the net interest margin contracted 45 basis points to 2.39% due to lower yields on earning assets, partially muted by lower funding costs.
Non-interest income was up 3% year over year to $1.8 billion on higher asset management, corporate services, residential mortgage and other income. This was partially muted by lower income from consumer services and service charges on deposits.
PNC Financial’s non-interest expenses totaled $2.53 billion, down 4% from the year-ago figure. This decline primarily resulted from the fall in marketing and other costs, partly offset by higher personnel expenses.
Efficiency ratio was 59% compared with 62% recorded in the prior-year quarter. It should be noted that a fall in the efficiency ratio indicates higher profitability.
As of Sep 30, 2020, total loans were down 3% sequentially to $249.3 billion. However, total deposits improved 3% to $355.1 billion.
Credit Quality: A Mixed Bag
Non-performing assets increased 17% year over year to $2.15 billion. Also, allowance for loan and lease losses more than doubled to $5.75 billion.
However, provision for credit losses declined significantly from the year-earlier quarter to $52 million. Net charge-offs were stable at $155 million.
Steady Capital Position
As of Sep 30, 2020, the Basel III common equity Tier 1 capital ratio was 11.7% compared with 9.6% as of Sep 30, 2019.
Return on average assets and average common equity came in at 1.32% and 11.76%, respectively, compared with 1.36% and 11.56% witnessed in the prior-year quarter.
In mid-March, the company temporarily suspended share buybacks through the third quarter, following the “unprecedented challenge” from the coronavirus pandemic. Notably, the suspension will continue through the fourth quarter as well.
PNC Financial displayed a 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.
A rise in provisions due to deterioration in the macro economic backdrop, nevertheless, is a concern. In addition, a lower net interest margin and declining loans balance are headwinds.
The PNC Financial Services Group, Inc Price, Consensus and EPS Surprise
Currently, PNC Financial carries a Zacks Rank #4 (Sell).
Performance of Mega Banks
Unexpected lower provisions along with improvement in trading and mortgage banking businesses drove JPMorgan’s JPM third-quarter 2020 earnings of $2.92 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.35.
As expected, Citigroup C delivered a positive earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results are, however, down significantly from the prior-year quarter.
First Republic Bank FRC delivered a positive earnings surprise of 16.7% in third-quarter 2020 aided by solid top-line strength. Earnings per share of $1.61 surpassed the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter.
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