October 13, 2017 / 8:09 PM / a year ago

Fitch: PNC Continues to Report Solid Earnings

(The following statement was released by the rating agency) CHICAGO, October 13 (Fitch) PNC Financial Services Group, Inc. (PNC) reported $1.1 billion of net income in the third quarter of 2017 (3Q17), up 2.6% on a linked-quarter basis and a considerable 12% from the year-ago period. Return on average assets (ROA) and return on average common equity (ROE) were stable from the linked quarter at 1.2% and 9.9%, respectively. PNC's higher net income was driven by growth in net interest income (NIM) and controlled expenses, partially offset by an increase in provision expenses and lower noninterest income as compared to last quarter. Fitch affirmed PNC's ratings on October 3 reflecting the company's strong earnings profile, stable and diverse business model, consistent performance through time, and solid liquidity profile. PNC's earnings, as measured by ROA, are higher than those of other large banks reporting to date. NIM grew nearly 4% sequentially and a considerable 12% from a year ago driven by higher loan yields and loan growth, partially offset by higher funding costs. PNC saw its NIM expand by 7bps sequentially and 23bps from the year-ago quarter. This was driven by higher asset yields due to short-term interest rate increases. PNC indicated deposit betas on its $12 billion of wealth deposits were just a "little bit more" than retail deposit betas. PNC's noninterest income fell by 1% sequentially, driven by a decline primarily in corporate service fees, particularly lower loan syndication fees, lower net hedging gains on commercial MSRs, and lower M&A advisory fees. This was partially offset by improved asset management, which includes PNC's equity investment in BlackRock, deposit service charges, and higher gains on asset sales. Expenses declined 1% on a linked-quarter basis reflecting lower equipment expense following last quarter's asset impairments. This was partially offset by higher personnel expenses due to increased headcount and an additional day during the quarter. PNC indicated it remains on track to achieve its 2017 Continuous Improvement Program expense savings target of $350 million. PNC achieved 1% sequential and 5% year-over-year loan growth during the quarter, primarily from commercial lending with modest retail loan growth. Commercial loan growth of $2.8 billion was broad-based across asset classes. Consumer loans were up slightly as higher mortgage, auto, and credit card balances were partially offset by lower home equity and student loan balances. PNC noted continued success in its direct auto product, Check Ready, and the quality of the overall auto book (which does not include leasing) remains good with an average FICO of 730 and average term of 70 months. Following the yield curve flattening during the quarter, PNC opted to pull back on securities purchases. PNC's credit quality remained solid with just 19bps of net charge-offs (NCOs) during the quarter, a 1bp improvement sequentially. Non-performing loans decreased by 4% from the prior quarter. PNC's provision expense was greater than its NCOs resulting in a $24 million reserve build compared to a $12 million reserve release in 2Q17. PNC disclosed that the provision expense for the quarter includes $10 million related to the recent hurricanes. Early-stage delinquencies increased 12%, primarily due to higher delinquencies in auto, home equity, and credit cards in hurricane-affected states. Auto delinquencies in particular were impacted, increasing 61% on a linked-quarter basis. PNC reported that its estimated Common Equity Tier 1 Ratio under the fully phased-in Basel III standardized approach was 9.8%, unchanged from the prior quarter. This change was driven by retained earnings offset by higher risk-weighted assets from loan growth. In terms of guidance for next quarter, PNC indicated loans will be up modestly, with NIM, fee income, and noninterest expenses all "up low-single digits." The provision expense is expected to be between $100 million and $150 million. PNC also expected a 25bps increase in short-term rates in December. Contact: Julie Solar Senior Director +1-312-368-5472 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Justin Fuller Senior Director +1-212-908-2057 . Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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