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PNC Financial reported better than expected first quarter earnings before the bell on Friday. $PNC saw higher interest income and a rise in non-interest income,  The Bank reported after Citigroup, Goldman Sachs, CitigroupWells Fargo  and JPMorgan

pnc bank atm

PNC Financial Services Group Inc NYSE: PNC · Reported Before Open Friday

$2.71 EPS Expected AND $4.11 billion Revenue Forecast

Earnings

PNC announced earnings per share that increased 110.26% year over year to $4.10, which beat the estimate of $2.75. Revenue of $4,220,000,000 decreased by 6.58% year over year, which beat the estimate of $4,110,000,000.

Expectations are for EPS of $2.71, on revenue of $4.11 billion.

PNC is expected to post quarterly earnings of $2.71 per share in its upcoming report, which represents a year-over-year change of +39%. Revenues are expected to be $4.11 billion, down 9% from the year-ago quarter.

The upcoming acquisition of BBVA USA Bancshares will likely be the biggest driver of balance sheet growth this year. PNC will close the acquisition in the mid of 2021. The acquisition will increase the loan portfolio size by around $66 billion or 27%. Apart from the acquisition, vaccine-driven recovery will also likely drive loan growth. The acquisition will likely improve the portfolio yield as it will soak up PNC’s excess liquidity. 

On the flip side, merger-related expenses will likely put a cap on the earnings growth this year.  The upcoming forgiveness of Paycheck Protection Program ("PPP") loans will likely constrain loan growth. As mentioned in their 10-K filing for 2020, PNC had $12 billion of PPP loans outstanding at the end of December, representing 5% of the loan portfolio. Considering the acquisition-related and organic growth, as well as the PPP forgiveness, Analysts are expecting the loan portfolio to increase by 25% by the end of 2021 from the end of 2020. 

PNC has also created a low-fee bank account that has received certification from the Cities for Financial Empowerment (CFE) Fund. The account will only charge customers $5 per month and have no charges for overdrafts or insufficient funds.

“We are committed to providing inclusive banking services for customers who may not have access to traditional checking or savings accounts,” said Bonnie Wikert, PNC executive vice president and head of retail segments and deposit products. “Our Smart Access prepaid debit card product is designed to help those customers conduct their banking in a safe and convenient manner.” 

 Big Banks Kick Off First Quarter 2021 Earnings Season

The bank rally has been fueled by expectations for the economy reopening and infrastructure spending.  The new surge in home prices has also buoyed optimism for the mortgage business and banks profits thereto.

PNC Financial Services Group Inc NYSE: PNC

Market Reaction $178.06 ▲ 3.27 (+1.87%) at NY Lunch

Highlights

Bill Demchak, president, chairman and CEO, said in the conference call

Bill Demchak, president, chairman and CEO, said in the conference call "As you saw, we had a solid start to the year as we grew revenue and controlled our expenses to generate positive operating leverage in the linked quarter comparison. Our first-quarter results also benefited from our provision recapture, driven largely by an improving economic outlook. Despite this recapture, our reserves remain at over 2% of loans as we continue to work through the COVID fallout and work to understand potential secular changes on certain asset classes.

Our capital on liquidity levels also remain at record highs. With the rise in term yields, we've been deploying some of this excess liquidity and increased our investment securities by $9 billion at period-end. You'll notice they didn't change much on an average basis as we bought later in the quarter. We also actually added another $9 billion in TBAs that are going to settle early in the second quarter here."


PNC Financial Services Q1 2021 Earnings

  • During the quarter loans declined by $8 billion, or 3%, due to lower utilization and continued soft loan demand.
  • Investment securities grew approximately $700 million, or 1% linked quarter
  • On a spot basis, balances increased $9 billion, or 11%, as we accelerated our purchase activity near the end of the quarter due to the steepening yield curve.
  • Average cash balances at the Federal Reserve grew to $85 billion in the first quarter, driven by continued deposit growth and lower loan balances.
  • On the liability side, deposit balances averaged $365 billion and were up $6 billion or 2% linked quarter.
  • Borrowed funds decreased $3 billion compared to the fourth quarter due to the runoff and redemption of debt obligations.
  • PNC tangible book value was $96.57 per common share as of March 31, a decrease on a linked quarter basis primarily due to a decline in AOCI.
  • Year-over-year tangible book value increased 14%.
  • As of March 31, 2021, PNC CET1 ratio was estimated to be 12.6%.
  • Average loan balances of $238 billion in the first quarter were down $8 billion or, 3%, compared to the fourth quarter.
  • Commercial loan balances declined $5.4 billion, or 3%, as overall utilization rates declined to historically low levels.
  • Paycheck Protection Program balances remained flat as originations were offset by loans forgiven.
  • Commercial real estate business, multi-family warehouse lending declined seasonally by $2 billion.
  • Consumer loans were down $2.3 billion with lower balances across all consumer categories as loan demand continued to soften due to higher consumer cash levels.
  • The yield on loan balances was 3.38%, a 3-basis-point increase compared to the fourth quarter.
  • However, the increase reflected elevated commercial real estate prepayment fees and higher PPP loan forgiveness during the quarter.
  • The rate paid on our interest-bearing deposits is now 6 basis points, a 2-basis-point decline linked quarter.
  • Average deposits increased $6 billion, or 2%, driven by enhanced consumer liquidity primarily related to government stimulus payments.
  • In the year-over-year comparison, total average loans decreased 2%, or $5 billion, primarily due to the elevated drawdowns that occurred during the first quarter of 2020.
  • Deposits increased $76 billion, or 26%,  driven by the high cash balances of our customers.
  • As a point of context, consumer checking account balances are on average roughly 40% higher than this time a year ago. 
  • Period-end loan to deposit ratio has declined to hit a historic low of 63% at the end of the first quarter, compared to 87% in the same period in 2020.

Dividends and Share Purchases

Regarding capital return, our board recently approved a quarterly cash dividend on common stock of $1.15 per share or approximately $500 million. We continue to suspend our share repurchases during the first quarter as we await regulatory approval for our pending BBVA USA acquisition. Assuming a midyear close, we expect to resume share repurchases in the second half of the year. Slide 4 shows our average loans and deposits in more detail.

BBVA

In the second quarter of 2020 PNC sold their passive stake — passive equity stake in BlackRock. In November, announced thier plan to redeploy those proceeds to acquire BBVA USA. PNC in November said it would acquire the U.S. banking operations of Spain's BBVA for $11.6 billion cash, making it the biggest regional bank by assets under management in the U.S. The transaction is expected to close in mid-2021 and will increase PNC's total assets by an estimated $102 billion, creating the fifth largest bank by assets.

Source: PNC Earnings Release 

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