The PNC Financial Services Group, Inc. (PNC) reported another impressive quarter with an earnings surprise of 5.7%. The company’s fourth-quarter 2014 earnings per share of $1.84 outpaced the Zacks Consensus Estimate of $1.74. Moreover, the bottom line compared favorably with $1.69 earned in the prior-year quarter.
For full year 2014, the company reported earnings per share of $7.30, which surpassed the Zacks Consensus Estimate of $7.20. However, this compared unfavorably with $7.36 earned in the prior year.
Better-than-expected results were primarily driven by a fall in the provision for credit losses and rise in non-interest income, which were, however, partially offset by higher expenses and lower net interest income. Further, an enhanced credit quality acted as a positive during the quarter.
The company reported net income of $1.06 billion in the reported quarter, down 1.6% from the year-ago quarter.
Furthermore, segment-wise, on a year-over-year basis, quarterly net income in Retail Banking, Asset Management Group and Other, including BlackRock segments, rose 60.7%, 25% and 10.6%, respectively. On the other hand, Corporate & Institutional Banking and Non-Strategic Assets Portfolio segments declined 0.9% and 35.7% respectively. Residential Mortgage Banking segment’s net income fell substantially from $55 million in fourth-quarter 2013 to a negative $9 million in fourth-quarter 2014.
Performance in Detail
Total revenue for the quarter came in at $3.95 billion, down 3.1% year over year. The fall was due to lower net interest income, partially offset by higher non-interest income. However, total revenue was above the Zacks Consensus Estimate of $3.81 billion. Total revenue for the year came in at $15.4 billion, beating the Zacks Consensus Estimate of $15.2 billion, but lower than the 2013 tally of $16.0 billion.
Net interest income was $2.1 billion, down 7.5% year over year. The fall was mainly due to lower core net interest income and reduced scheduled accretion net of contractual interest. Moreover, net interest margin decreased 49 basis points (bps) year over year to 2.89%.
Non-interest income climbed 2.4% year over year to $1.9 billion. The uptick was mainly due to increased asset management revenue, along with higher corporate service fees, higher service charges on deposits and other, including net securities gains.
PNC Financial’s non-interest expense stood at $2.5 billion, up 1% from the prior-year quarter. The rise was mainly due to higher charges related to occupancy, equipment marketing and other, partially offset by lower costs related to personnel.
Credit Quality
PNC Financial’s overall credit quality improved in the said quarter. Nonperforming assets fell 16.7% year over year to $2.9 billion. Ratio of nonperforming assets to total assets was 0.83% as of Dec 31, 2014, down 25 bps from the year-ago quarter.
Moreover, the allowance for loan and lease losses to total loans was 1.63% as of Dec 31, 2014, decreasing 21 bps from the prior-year quarter. Net charge-offs fell 37.6% year over year to $118 million. Additionally, provision for credit losses was $52 million, down 54% year over year.
Capital Position
As of Dec 31, 2014, the transitional Basel III common equity Tier 1 capital ratio was 11.0%, down 1 basis point sequentially. Further, Tier 1 risk-based capital ratio was 12.7%, while leverage ratio was 10.8%.
As of Dec 31, 2014, total assets were $345.1 billion, up 7.8% from the prior-year quarter. Total loans were $204.8 billion, up 4.7% year over year. Further, total deposits increased 5.7% from the prior-year quarter to $229.4 billion.
Capital Deployment
In fourth-quarter 2014, PNC Financial repurchased 6.1 million common shares for $0.5 billion. Notably, the share buyback came under the company’s previously announced $1.5 billion share repurchase program for the four-quarter period beginning second-quarter 2014, under its existing common stock repurchase authorization.
Our Viewpoint
We believe that PNC Financial is well positioned to grow, given its diverse revenue mix, balance-sheet strengthening efforts, improving credit quality, strategic acquisitions and steady capital levels. An increase in lending activities augurs well for the company. Moreover, PNC Financial’s capital deployment activities are impressive.
However, the protracted economic recovery and also a low interest-rate environment would keep PNC Financial’s margins under pressure. The stock currently carries a Zacks Rank #3 (Hold).
Performance of Other Major Banks
Wells Fargo & Company’s (WFC) fourth-quarter 2014 results met expectations. The financial bigwig came out with earnings per share of $1.02, meeting the Zacks Consensus Estimate.
Citigroup Inc. (C) reported fourth-quarter adjusted earnings per share of 6 cents, missing the Zacks Consensus Estimate of 9 cents.
Bank of America Corp.'s (BAC) fourth-quarter 2014 adjusted earnings of 32 cents per share came a penny ahead of the Zacks Consensus Estimate. However, after considering certain non-recurring items, earnings per share stood at 25 cents compared with 29 cents earned in year-ago quarter.
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