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

DBRS, Inc. (DBRS Morningstar) confirmed the ratings of PNC Financial Services Group, Inc. (PNC or the Company), including the Company’s Long-Term Issuer Rating of A (high). At the same time, DBRS Morningstar upgraded PNC’s short-term ratings to R-1 (middle) from R-1 (low). DBRS Morningstar also 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 SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
PNC’s short-term ratings upgrade reflects DBRS Morningstar’s view that regulated banking organizations, including their holding companies, are being held to high liquidity standards commensurate with the notch
higher rating on our Short-Term scale.

The Company’s IA and Stable trend reflect its strong banking franchise and diversified business model, which underpins the Company’s stable and sustainable earnings. The ratings are also supported by PNC’s solid funding, liquidity and capitalization, as well as its conservative risk profile. DBRS Morningstar expects credit trends to normalize, as well as a more challenging interest rate environment that may pressure the net interest margin.

RATING DRIVERS
While DBRS Morningstar views the ratings as well placed, franchise growth resulting in a sustained improvement in the level of earnings, could lead to positive ratings pressure. Conversely, a weaker than peer performance reflecting a deterioration in core earnings, and/or weakening balance sheet fundamentals could negatively pressure the ratings.

RATING RATIONALE
PNC provides a wide range of products and services, many of which are offered nationally, highlighted by its strong corporate and institutional banking businesses and significant equity investment in BlackRock, a global investment manager with $7.43 trillion in assets under management. Additionally, the Company operates a regional retail bank with a branch network focused on the Mid-Atlantic, Midwest and Southeast markets and is augmented by a national retail digital presence. DBRS Morningstar notes that PNC’s business mix generates a significant amount of fee income (typically around 40 to 45% of total net revenue), providing less reliance on spread income and stability to earnings.

PNC generated $5.4 billion of net income in 2019, representing a solid return on average assets (ROA) of 1.35%, although up just 1% year-over-year. For 2019, the Company reported positive operating leverage, which was partially offset by a higher provision for credit losses. Specifically, total revenues increased 4% versus 2018, reflecting an improvement in net interest income on volume growth partially offset by net interest margin pressure. Meanwhile, fee income benefitted from broad-based growth with strong performances from BlackRock, Corporate Services and residential mortgage. Noninterest expenses increased 3%, reflecting ongoing investment in businesses, technology and people.

PNC’s balance sheet fundamentals, including asset quality, funding and liquidity and capitalization remain solid. Providing substantial financial flexibility, the Company’s 22% economic interest in BlackRock had an inferred unrecognized gain of $7.0 billion as of the end of 3Q19. The Company has experienced solid deposit growth in recent periods, reflecting strong customer growth.

Headquartered in Pittsburgh, PNC Financial Services Group, Inc. reported total assets of $410 billion as of December 31, 2019.

The Grid Summary Grades for PNC are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile –Strong; Funding & Liquidity – Strong; Capitalisation – Very Strong/Strong.

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

The principal methodology is Global Methodology for Rating Banks and Banking Organisations (June 2019), which can be found on our website under Methodologies & Criteria.

The primary sources of information used for this rating include Company Documents and S&P Global Market Intelligence. DBRS Morningstar considers the information available to it for the purposes of providing this rating was of satisfactory quality.

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

For more information on this credit or on this industry, visit www.dbrs.com.

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