DBRS Confirms PNC Financial Services Group, Inc. at A (high), Stable Trend

DBRS, Inc. (DBRS) has today confirmed the ratings for PNC Financial Services Group, Inc. (PNC or the Company), including the Company’s Issuer & Senior Debt rating of A (high). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, PNC Bank, N.A. (the Bank). The trend for all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA (low), while its Support Assessment remains SA1. The Company’s Support Assessment is also SA3 and its Issuer & Senior Debt rating is positioned one notch below the Bank’s IA.

DBRS’s confirmation of PNC’s ratings reflects the Company’s strong banking franchise and favorable credit fundamentals, including ample earnings generation capacity, sound asset quality, as well as robust funding, liquidity and capitalization. The ratings also consider the challenging operating environment, including low interest rates, sluggish economic growth and declining energy prices. Overall, DBRS views PNC as well positioned within its rating category.

Underpinning the Company’s strong banking franchise is a defensible deposit base covering 17 states across the Mid-Atlantic, Southeast and Midwest regions. Overall, PNC is the 6th largest bank in the U.S. by deposits with top five deposit market share positions in nine states and D.C., including a dominant 24% market share in Pennsylvania. The Company provides a broad set of products and services to customers on a national basis, as well as in its primary geographic markets, comprising corporate, institutional, retail and residential mortgage banking, as well as asset management, which includes a significant investment in BlackRock, Inc. Notably, this diversified business mix generates a considerable amount of fee income (typically around 40-45% of total revenue), providing stability to earnings.

PNC’s earnings power remains resilient, despite the still challenging operating environment, with profitability metrics remaining in the top tier of its regional bank peer group. For 2016, the Company generated $4.0 billion of net income, representing a return on average assets (ROA) of 1.10%, which was down slightly versus the prior year, primarily due to lower net gains from the sale of Visa shares and a higher provision for credit losses associated with pressure in its energy-related loan portfolio. More recently, PNC reported $1.1 billion of net income in 1Q17, representing a ROA of 1.19%, which was an improvement compared to the linked and year-ago quarters. Results benefited from the March interest rate hike and modest loan growth, while expenses remain well contained even with continued investment in the franchise.

Providing key support to the ratings, PNC’s balance sheet fundamentals remain strong. Specifically, the Company’s asset quality remains favorable, with very low levels of non-performing assets and net charge-offs. In addition, PNC’s funding and liquidity, as well as capitalization remain solid, with a liquidity coverage ratio above 100% and a fully phased-in common equity tier 1 ratio of 10.0% as of 1Q17.

Headquartered in Pittsburgh, PNC Financial Services Group, Inc. reported total assets of $371 billion and total deposits of $261 billion as of March 31, 2017.

RATING DRIVERS
Sustained improvement in core earnings, while maintaining strong balance sheet fundamentals, could have positive rating implications. Conversely, sustained deterioration in core earnings, and/or weakening balance sheet fundamentals could place negative pressure on the ratings.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodologies are the Global Methodology for Rating Banks and Banking Organisations (July 2016), DBRS Criteria: Support Assessments for Banks and Banking Organisations (March 2017) and DBRS Criteria Rating Bank Capital Securities – Subordinated, Hybrid, Preferred & Contingent Capital Securities (February 2017), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

Lead Analyst: Michael McTamney, Vice President – Global FIG
Rating Committee Chair: Michael Driscoll, Managing Director – Global FIG
Initial Rating Date: 6 April 2006
Last Rating Date: 2 May 2016

The rated entity or its related entities did participate in the rating process. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities.