The PNC Financial Services Group, Inc. 's PNC second-quarter 2016 earnings per share of $1.82 handily beat the Zacks Consensus Estimate of $1.75. However, the bottom line declined 3% year over year.
Better-than-expected results were aided by increased net interest income and relatively stable expenses, partially offset by lower non-interest income. Also, continued growth in loans and deposits were among other positives. However energy related headwinds persisted, which led to higher provisions.
The company reported net income of $989 million in the reported quarter, down 5% year over year.
Segment-wise, on a year-over-year basis, while the quarterly net income in Retail Banking improved 27%, Residential Mortgage Banking recorded a significant increase.
However, net income in Corporate & Institutional Banking, Asset Management, Non-Strategic Assets Portfolio and Other, including BlackRock segments, declined 4%, 23%, 48% and 56%, respectively.
Improved Net interest Income, Costs Stable
Total revenue for the quarter came in at $3.79 billion, missing the Zacks Consensus Estimate of $3.82 billion. Further, revenues declined 2% year over year.
Net interest income inched up 1% year over year to $2.07 billion due to an increase in core net interest income, partially offset by reduced purchase accounting accretion. However, net interest margin (NIM) decreased 3 basis points (bps) year over year to 2.70%.
Non-interest income dropped 5% year over year to $1.73 billion. The decline was mainly led by reduced revenues from the asset management business, reflecting a trust settlement of $30 million. However, all other fee income categories including consumer services, service charges on deposits and residential mortgage exhibited growth.
PNC Financial's non-interest expense was $2.36 billion, almost stable year over year. The quarter witnessed a rise in personnel, occupancy and equipment-related expenses while marketing and other expenses declined.
As of Jun 30, 2016, total loans increased 2% to $209.1 billion, driven by commercial lending. Also, total deposits increased 4% year over year to $249.8 billion.
Mixed Credit Quality
PNC Financial's credit quality was a mixed bag in the reported quarter.
Non-performing assets fell 2% year over year to $2.52 billion. Moreover, the allowance for loan and lease losses declined 18% year over year to $2.69 billion.
However, net charge-offs increased significantly year over year to $134 million. Also, provision for credit losses was $127 million, considerably up from $46 million in the prior-year quarter. Exposures to weak oil, gas and coal sectors remained a headwind.
Strong Capital Position
As of Jun 30, 2016, the transitional Basel III common equity Tier 1 capital ratio was 10.6%, stable year over year. Tier 1 risk-based capital ratio and leverage ratio were 11.9% and 10.2%, respectively, compared with 12.0% and 10.3% in the prior-year quarter end.
In second-quarter 2016, PNC Financial repurchased 29.9 million common shares for $2.7 billion, completing its common stock repurchase programs for the five quarter period ending Jun 2016.
We believe that PNC Financial is well positioned to grow, given a solid business model, diverse revenue mix and cost saving measures. An increase in lending activities augurs well for the company. Further the successful clearance of the Fed stress test indicates PNC Financial's ability to weather any severe economic downturn. Additionally, the company's 2016 capital plan won regulatory approval, following which the company recently hiked the quarterly common stock dividend by 8%. The plan also includes share buyback of up to $2 billion over the four-quarter period commencing in the third quarter of 2016.
However, amid a slow rise in interest rates, the company's margin pressure is not likely to alleviate soon.
PNC FINL SVC CP Price, Consensus and EPS Surprise
The stock currently carries a Zacks Rank #3 (Hold).
Performance of Other Banks
Among major banks, JPMorgan Chase & Co. JPM kick-started the second-quarter earnings season on a positive note. Driven by improved trading revenues, the company reported earnings of $1.55 per share that handily outpaced the Zacks Consensus Estimate of $1.43. Also, the figure reflects a 1% rise from the year-ago period.
Citigroup Inc. C came out with second-quarter 2016 earnings from continuing operations per share of $1.25, easily beating the Zacks Consensus Estimate of $1.09. Results were primarily aided by lower expenses, partially offset by reduced revenues.
Wells Fargo & Company WFC came out with earnings per share of $1.01, missing the Zacks Consensus Estimate of $1.02. Higher expenses were primarily responsible for this earnings miss.
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