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PNC Financial (PNC) Reports Q2 Loss, Provisions Escalate

PNC Financial (PNC) reported second-quarter 2020 loss from continuing operations per share of $1.90 as against the earnings of $2.47 reported in the prior-year quarter. Higher provisions due to the coronavirus pandemic’s crippling impact on the economy resulted in this dismal performance. The Zacks Consensus Estimate was pegged at 88 cents.

Including income from discontinued operations on the divestment of 22.4% equity investment in BlackRock in May, net income came in at $3.7 billion or $8.40 per share compared with the $1.4 billion or $2.88 per share witnessed in the prior-year quarter.

Lower revenues on decline in fee income, along with higher provisions, were the headwinds. Moreover, a lower net interest margin and decrease in loans were undermining factors. However, expenses dropped, while net interest income improved slightly.

Segment wise, quarterly net loss was reported in Corporate & Institutional Banking, Retail banking and the Other segments. The Asset Management Group segment registered a 65% plunge.

Revenues Down, Costs Decline

Total revenues for the reported quarter came in at $4.1 billion, down 3% year over year. The top-line figure came in line with the Zacks Consensus Estimate.

Net interest income inched up 1% from the year-ago quarter to $2.5 billion. Lower rates on deposits and borrowings, along with elevated average loans, balances held with the Federal Reserve Bank and securities, were partially negated by lower yields on earning assets. However, the net interest margin contracted 39 basis points to 2.52% due to lower yields on earning assets, partially muted by lower funding costs.

Non-interest income was down 10% year over year to $1.5 billion on lower asset management, consumer, service charges on deposits and other income. This was partially muted by higher corporate services and residential mortgage income.

PNC Financial’s non-interest expenses totaled $2.5 billion, down 4% from the year-ago figure. This decline primarily resulted from the fall in marketing and occupancy costs, along with other costs, partly offset by higher equipment and personnel costs.

Efficiency ratio was 62%, in line with the prior-year quarter.

As of Jun 30, 2020, total loans were down 2% sequentially to $258.2 billion. However, total deposits improved 13% to $346 billion.

Credit Quality: A Concern

Credit metrics deteriorated during the June-end quarter. Non-performing assets escalated 6% year over year to $1.95 billion. Net charge-offs surged 66% to $236 million.

Allowance for loan and lease losses more than doubled on a year-over-year basis to $5.9 billion. Provision for credit losses escalated significantly from the year-earlier quarter to $2.5 billion.

Steady Capital Position

As of Jun 30, 2020, the Basel III common equity Tier 1 capital ratio was 11.3% compared with 9.7% as of Jun 30, 2019.

Return on average assets and average common equity came in at 3.21% and 30.11%, respectively, compared with the 1.39% and 11.75% witnessed in the prior-year quarter.

Share Repurchase

In mid-March, the company temporarily suspended share buybacks through the second quarter, following the “unprecedented challenge” from the coronavirus pandemic. Notably, the suspension will continue through the third quarter as well.

Our Viewpoint

PNC Financial displayed a disappointing performance during the April-June period. Rise in net interest income is likely to support its top line in the upcoming period. Further, 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 is another headwind.
 

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.

Performance of Mega Banks

Citigroup (C) delivered an earnings surprise of 6.4% in the second quarter on robust revenue strength. Earnings per share of 50 cents for the quarter handily outpaced the Zacks Consensus Estimate of 47 cents. Results were, however, down significantly from the prior-year quarter.

Citigroup recorded higher revenues on investment banking and market revenues during the reported quarter. Though equity market revenues disappointed on a more challenging environment in derivatives, and prime finance and securities services revenues declined, fixed income revenues were on an upswing reflecting strength in rates and currencies, spread products and commodities. Moreover, investment banking revenues increased on solid underwriting business, partly muted by lower advisory business. Additionally, fall in expenses was on the upside. However, elevated cost of credit due to the pandemic is a major drag.

A significant improvement in trading and mortgage banking businesses drove JPMorgan’s (JPM) second-quarter earnings of $1.38 per share. The bottom line surpassed the Zacks Consensus Estimate of $1.34. The results included provision builds due to deterioration in the macro-economic backdrop, bridge book markups and gains related to funding spread tightening on derivatives. Excluding these, earnings per share amounted to $3.27.

Wells Fargo (WFC) reported second-quarter 2020 loss per share of 66 cents, which resulted from a reserve build of $8.4 billion for the coronavirus outbreak-related crisis. The Zacks Consensus Estimate for the same was pegged at a loss of 7 cents. Reduced net interest income on lower rates and a disappointing fee income negatively impacted the company’s results. Notably, lower mortgage banking revenues and service charges on deposit accounts were major drags.

Provisions also soared on the coronavirus crisis during the reported quarter. Further, rise in non-interest expenses and a decline in loan balance acted as headwinds.

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