DBRS: PNC’s Sound 3Q15 Results Reflect Stable Core Revenues, Expense Control & Tax Benefits

Summary:
• The Company reported earnings to common shareholders of $991 million for 3Q15, stable with the prior quarter, and up 2.6% from 3Q14. Improved year-over-year results reflected lower taxes driven by a 3Q15 $75 million benefit due to PNC settling acquired entity tax contingencies offset by additions to reserves of $10 million for various tax matters.
• Despite modestly lower average loans, the Company’s balance sheet remains strong, reflecting deposit growth, sustained sound asset quality, and solid capital and liquidity positions.
• 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) 3Q15 results as solid and reflective of the Company’s diverse business profile and strong balance sheet. The Company’s core revenues were stable quarter-over-quarter (QoQ) and expenses were well managed. Furthermore, QoQ results reflected several non-core items including a tax benefit related to acquired entity tax contingencies, the non-recurrence of 2Q15 trust settlement gains, and lower Visa related gains. Overall, PNC’s balance sheet fundamentals remain strong, reflecting sustained average deposit growth, sound asset quality, and solid capital and liquidity positions.

The Company’s diverse businesses continue to provide stability to earnings. Indeed, improved QoQ levels of consumer and corporate services fees and deposit service charges, mostly offset lower levels of asset management fees (excluding the 2Q15 $30 million trust settlement) and residential mortgage revenues. Meanwhile, spread income increased slightly linked-quarter driven by one extra day in the quarter, partially offset by lower purchase accounting accretion.

Despite the continued run-off of the Company’s non-strategic loan portfolio, which contributed to the linked-quarter decline in average loans, PNC reported modest growth in average levels of commercial real estate loans, credit card exposures and indirect auto loans. Notwithstanding the difficult business environment, the Company expects modest loan growth in 4Q15.

PNC maintains sound asset quality, ample liquidity, and a strong capital profile. Specifically, non-performing assets continued to decline and net charge-offs remain low. Meanwhile, 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%. Finally, PNC’s capital position remains strong, as evidenced by its estimated common equity Tier 1 ratio under Basel III (fully phased in) of 10.1%, at September 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.