DBRS: PNC’s Solid 2Q15 Results Bolstered by Non-core Gains; Some seasonality- Strong Balance Sheet

Summary:
• Reported earnings to common shareholders of $992 million, up 6.3% from 1Q15, reflecting higher fee income comprising some seasonality within its Retail Banking business, and higher non-core gains, including a $79 million Visa stock gain, and a $30 million trust settlement within its Asset Management business.
• Importantly, the Company continues to deliver sustained average loan and deposit growth, as balance sheet fundamentals remain strong.
• DBRS rates PNC Financial Services Group, Inc.’s Issuer & Senior debt at A (high) with a Stable trend.

DBRS, Inc. (DBRS) considers PNC Financial Services Group, Inc.’s (PNC or the Company) 2Q15 results as solid and reflective of the Company’s diverse business profile and strong balance sheet. Higher quarter-on-quarter (QoQ) earnings were driven by improved customer activity within the Corporate Institutional Banking and Retail Banking businesses along with higher non-core gains. Meanwhile, expenses were well managed, but were up modestly sequentially. DBRS notes that PNC’s balance sheet fundamentals remained strong in the quarter, reflecting sustained average loan and deposit growth, sound and improving asset quality, and a strong capital position.

The Company’s diverse revenue sources continue to provide stability to earnings. Improved 2Q15 earnings QoQ reflected higher income generated within PNC’s Retail Banking, Corporate Institutional Banking and Asset Management Group businesses. Specifically, improved consumer service fees reflected seasonally higher customer transaction activity, while corporate service fees were up due to higher levels of treasury management and capital markets advisory fees. The increase in asset management fees mostly reflected a trust settlement. Meanwhile, and partially offsetting these tailwinds, the net interest margin continued to narrow, driven by lower purchase accounting accretion and the Company’s growing liquidity position. Finally, expenses remain well managed, and continue to benefit from the cost savings actions driven by PNC’s “Continuous Improvement Program”. DBRS notes that management has stated that cost saves will continue to be invested back into the Company.

Despite the continued run-off of the non-strategic loan portfolio, the Company reported modest average loan growth, QoQ, driven, by its real estate and corporate banking businesses. DBRS notes that PNC continues to deliver loan growth, even in an extremely competitive environment for quality customers.

Reflective of the Company’s conservative management profile, asset quality remains sound. During the quarter, PNC’s credit quality continued to improve, reflecting lower levels of non-performing assets and very low net charge-offs. DBRS notes that PNC maintains a modest sized energy portfolio with a manageable level of risk.

The Company’s liquidity position reflected continued growth in its high quality securities book, supported by deposit growth. DBRS notes that the Company’s estimated Liquidity Coverage Ratio exceeded 100%, which is above the minimum 2015 phased-in requirement of 80%. Meanwhile, PNC’s capital position remains strong, as evidenced by its estimated common equity Tier 1 ratio under Basel III (fully phased in) of 10.0%, at June 30, 2015.

DBRS rates PNC Financial Services Group, Inc.’s Issuer & Senior debt at A (high) with a Stable trend.

Note:
All figures are in U.S. Dollars unless otherwise noted.