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PNC Financial reported better than expected second quarter earnings before the bell on Wednesday. $PNC closed the BVA USA Bancshares acquisition June 1 and is the biggest driver of balance sheet growth this year. The Bank reported after Citigroup, Goldman Sachs, CitigroupWells Fargo  and JPMorgan

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

$4.5 Beat $3.09 EPS Expected AND $4.67 Beat $4.38 billion Revenue Forecast

Earnings

PNC Financial announced earnings per share of $4.5 on revenue of $4.67B up $447 million compared with the first quarter, reflecting the acquisition as well as strong organic fee growth. Analysts had anticipated EPS of $3.09 on revenue of $4.38B. Prior to adjustments the EPS was $2.43, which included an initial provision for BBVA USA of $1 billion and integration costs of $111 million. Adjusted for these items, the EPS was $4.50 in the second quarter.

Expenses increased $476 million or 18% linked quarter, including $181 million of significant items related to integration expenses and litigation reserves as well as one month of BBVA operating expenses and higher legacy PNC business activity.

The acquisition of BBVA USA Bancshares was the biggest driver of balance sheet growth this year. PNC closed the acquisition  June 1, 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 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 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.” 

Market Reaction $183.43 ▼ 6.07 (-3.20%) Market Close July 16

Highlights

  • Total loans were $295 billion at quarter end.
  • With the BBVA acquisition, PNC loan mix remains consistent at approximately two-thirds commercial and one-third consumer.
  • Total deposits were $453 billion at June 30th.
  • Rate paid on interest bearing deposits is now five basis points, a one-basis-point decline linked quarter.
  • Commercial loan balances of $200 billion increased $35 billion. BBVA contributed $39 billion and spot PNC legacy growth of approximately $1 billion was offset by a $4.5 billion decline in PPP loans.
  • Consumer loans were up $23 billion, represented by $22 billion of acquired loans as well as growth in legacy PNC consumer loans, primarily in the residential real estate portfolio.
  • The yield on loan balances was stable at 3.38% percent compared to the first quarter and reflected the combined loan portfolio. 
  • Securities balances were $127 billion at the end of the second quarter, $28 billion increase linked quarter due to the addition of $18 billion of securities from the acquisition and $10 billion in net purchases.
  •  Fed cash balances decreased $14 billion linked quarter, reflecting continued deployment into securities and the payment of $11.5 billion dollars for the acquisition. Despite the linked quarter decline, PNC liquidity position remains in excess of LCR requirements.

Dividends and Share Purchases

Announced a $0.10 increase to our quarterly cash dividend on common stock, raising the dividend to $1.25 per share. Additionally, we reinstated our share repurchase programs of up $2.9 billion for the fourth quarter period beginning in the third quarter of 2021.

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 closed June 12021 and will increase PNC's total assets by an estimated $102 billion, creating the fifth largest bank by assets.

Overall linked quarter balance sheet growth was driven by the acquisition, of course, which contributed $60 billion in loans, $18 billion of investment securities, and $82 billion of deposits at quarter end. Excluding those additions during the quarter, legacy PNC loan balances declined $3 billion, investment securities increased $10 billion and deposits declined by $4 billion, and I'll cover the drivers in more detail over the next few slides. We ended the quarter with a tangible book value of $93.83 per share and an estimated CET 1 ratio of 10%, substantially above the levels we anticipated at the time of the deal announcement. As a result, we're well-positioned with significant capital flexibility. - Rob Reilly -- Chief Financial Officer

Source: PNC Earnings Release 

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