Actionable news
0
All posts from Actionable news
Actionable news in PNC: PNC FINANCIAL SERVICES GROUP,

PNC Financial Services: Pnc Reports First Quarter 2016 Net Income Of $943 Million, $1.68 DILUTED EPS

The following excerpt is from the company's SEC filing.

Strong balance sheet and capital, expenses controlled

PITTSBURGH, April 14, 2016 The PNC Financial Services Group, Inc. (NYSE: PNC) today reported net income of $943 million, or $1.68 per diluted common share, for the first quarter of 2016 compared with net income of $1.0 billion, or $1.87 per diluted common share, for the fourth quarter of 2015 and net income of $1.0 billion, or $1.75 per diluted common share, for the first quarter of 2015.

PNC had solid first quarter earnings that were impacted by weaker equity markets and related fees, and continued deterioration in energy related credits, sa id William S. Demchak, chairman, president and chief executive officer. We lowered expenses, maintained a strong balance sheet and continued to return capital to shareholders. We also saw good underlying trends in our businesses to start the year, and we expect that momentum to continue in 2016.

Income Statement Highlights

First quarter results reflected higher loans and securities, lower revenue, reduced noninterest expense, and higher provision for credit losses compared with the fourth quarter of 2015.

Net interest income of $2.1 billion for the first quarter increased $6 million compared with the fourth quarter driven by growth in core net interest income despite a lower day count.

Noninterest income of $1.6 billion for the first quarter decreased $194 million, or 11 percent, compared with the fourth quarter primarily due to weaker equity markets, lower capital markets activity and seasonality.

Noninterest expense declined $115 million, or 5 percent, to $2.3 billion reflecting seasonally lower business activity and PNCs continued focus on disciplined expense management.

Provision for credit losses of $152 million for the first quarter increased $78 million compared with the fourth quarter primarily attributable to certain energy related loans.

- more -

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 2

Balance Sheet Highlights

Loans grew $.8 billion to $207.5 billion at March 31, 2016 compared with December 31, 2015.

Total commercial lending grew $1.6 billion, or 1 percent, primarily in PNCs corporate banking and real estate businesses.

Total consumer lending decreased $.8 billion due to lower home equity and education loans as well as runoff in the non-strategic portfolio.

Overall credit quality in the first quarter remained relatively stable with the fourth quarter, except for certain energy related loans.

Nonperforming assets of $2.6 billion at March 31, 2016 increased $.1 billion, or 5 percent, compared with December 31, 2015.

Net charge-offs increased to $149 million for the first quarter compared with $120 million for the fourth quarter.

Deposits of $250.4 billion at March 31, 2016 increased $1.4 billion, or 1 percent, over December 31, 2015 due to growth in consumer deposits partially offset by lower commercial deposits.

Average deposits decreased $.8 billion from the fourth quarter reflecting seasonal declines in commercial deposits.

Investment securities increased $2.0 billion, or 3 percent, in the first quarter to $72.6 billion at March 31, 2016 compared with December 31, 2015.

PNC maintained a strong liquidity position.

The estimated Liquidity Coverage Ratio at March 31, 2016 exceeded 100 percent for both PNC and PNC Bank, N.A., above the minimum phased-in requirement of 90 percent in 2016.

PNC returned capital to shareholders in the first quarter through repurchases of 5.9 million common shares for $.5 billion and dividends on common shares of $.3 billion.

PNC maintained a strong capital position.

Transitional Basel III common equity Tier 1 capital ratio was an estimated 10.6 percent at March 31, 2016 and December 31, 2015, calculated using the regulatory capital methodologies applicable to PNC during 2016 and 2015, respectively.

Pro forma fully phased-in Basel III common equity Tier 1 capital ratio was an estimated 10.1 percent at March 31, 2016 and 10.0 percent at December 31, 2015 based on the standardized approach rules.

Earnings Summary

In millions, except per share data

Net income

Net income attributable to diluted common shares

Diluted earnings per common share

Average diluted common shares outstanding

Return on average assets

Return on average common equity

Book value per common share

Period end

Tangible book value per common share (non-GAAP)

Period end

Cash dividends declared per common share

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 3

The Consolidated Financial Highlights accompanying this news release include additional information regarding reconciliations of non-GAAP financial measures to reported amounts, including reconciliations of tangible book value to book value per common share and business segment income to net income. Reference to core net interest income is to total net interest income less purchase accounting accretion, which consists of scheduled accretion and excess cash recoveries, as detailed in the Consolidated Financial Highlights. Fee income refers to noninterest income in the following categories: asset management, consumer services, corporate services, residential mortgage, and service charges on deposits. Information in this news release including the financial tables is unaudited. See the notes and other information in the Consolidated Financial Highlights.

CONSOLIDATED REVENUE REVIEW

Revenue

Change

1Q16 vs

Total revenue

Total revenue for the first quarter of 2016 decreased $188 million compared with the fourth quarter and $66 million compared with the first quarter of 2015. Growth in net interest income was more than offset by lower noninterest income which reflected weaker equity markets, lower capital markets activity and, in the comparison with fourth quarter 2015, seasonally lower fee income.

Net interest income for the first quarter of 2016 increased $6 million compared with the fourth quarter and $26 million compared with the first quarter of 2015 due to growth in core net interest income partially offset by lower scheduled purchase accounting accretion. The increase in core net interest income in both periods reflected higher loan yields and higher loan and securities balances partially offset by higher borrowing costs related to higher short-term interest rates. Core net interest income grew in spite of the impact of one less day in the first quarter compared with the fourth quarter.

The net interest margin of 2.75 percent for the first quarter of 2016 increased over the fourth quarter margin of 2.70 percent primarily due to lower balances on deposit with the Federal Reserve Bank and higher loan yields. The margin declined from 2.82 percent in the first quarter of 2015 principally as a result of lower benefit from purchase accounting accretion and higher securities balances partially offset by lower balances on deposit with the Federal Reserve Bank.

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 4

Noninterest Income

Asset management

Consumer services

Corporate services

Residential mortgage

Service charges on deposits

Other, including net securities gains

Noninterest income for the first quarter of 2016 decreased $194 million compared with the fourth quarter. Asset management revenue, which includes earnings from PNCs equity investment in BlackRock, declined $58 million primarily due to the impact of lower equity markets. Consumer service fees and service charges on deposits each decreased $12 million driven by seasonally lower volumes of customer-initiated transactions. Corporate service fees declined $69 million attributable to lower merger and acquisition advisory fees and loan syndication fees, down from traditionally strong fourth quarter levels. Residential mortgage banking noninterest income decreased $13 million primarily as a result of net hedging losses on mortgage servicing rights in first quarter 2016 partially offset by higher servicing fee income. Other noninterest income declined $30 million and included gains on the sale of Visa Class B common shares of $44 million for first quarter 2016 compared with $47 million for fourth quarter 2015, as well as lower gains on other asset sales.

Noninterest income for the first quarter of 2016 decreased $92 million compared with the first quarter of 2015. Asset management revenue declined driven by lower equity markets. Fee income growth was reflected in higher consumer service fees and service charges on deposits. Corporate service fees declined primarily due to lower net hedging gains on commercial mortgage servicing rights and lower capital markets activity. Residential mortgage banking noninterest income decreased as a result of first quarter 2016 net hedging losses on residential mortgage servicing rights and lower loan sales revenue partially offset by higher servicing fee income. Other noninterest income declined primarily due to lower gains on securities sales and other asset dispositions substantially offset by the first quarter 2016 gain on sale of Visa Class B common shares. There were no sales of Visa shares in first quarter 2015.

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 5

CONSOLIDATED EXPENSE REVIEW

Noninterest Expense

Personnel

Occupancy

Equipment

Marketing

Noninterest expense for the first quarter of 2016 decreased $115 million from the fourth quarter. Personnel expense declined primarily due to seasonal factors including lower variable compensation costs associated with lower business activity and lower employee benefits related to reduced medical plan claim volume. Continued investments in technology and business infrastructure were funded in part by well-controlled expenses.

Noninterest expense for the first quarter of 2016 decreased $68 million compared with the first quarter of 2015 reflecting lower legal costs and lower variable compensation as well as a continued focus on expense management.

The effective tax rate was 23.5 percent for the first quarter of 2016, 26.1 percent for the fourth quarter of 2015 and 24.4 percent for the first quarter of 2015.

CONSOLIDATED BALANCE SHEET REVIEW

Total assets were $361.0 billion at March 31, 2016 compared with $358.5 billion at December 31, 2015 and $351.0 billion at March 31, 2015. Assets increased 1 percent compared with year end 2015. Higher investment securities and loans were partially offset by a decrease in deposits maintained with the Federal Reserve Bank. Assets grew 3 percent compared with March 31, 2015 primarily due to a 19 percent increase in investment securities.

3/31/16 vs

In billions

3/31/2016

3/31/2015

12/31/15

3/31/15

Commercial lending

Consumer lending

Total loans

For the quarter ended:

Average loans

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 6

Total loans grew $.8 billion as of March 31, 2016 compared with December 31, 2015. Commercial lending balances increased $1.6 billion in the first quarter primarily from growth in PNCs corporate banking and real estate businesses. Consumer lending decreased $.8 billion reflecting lower home equity and education loans.

Average loans increased $1.2 billion in the first quarter of 2016 compared with the fourth quarter. Average commercial lending balances increased $2.0 billion principally from growth in commercial real estate and commercial loans in PNCs real estate business. Average consumer lending balances decreased $.8 billion due in part to lower non-strategic portfolio loan balances which reflected the impact of PNCs derecognition of pooled purchased impaired loans of $468 million at December 31, 2015. Additionally, home equity and education loans declined partially offset by growth in automobile and credit card loans.

First quarter 2016 period end and average loans increased $2.8 billion and $2.0 billion, respectively, compared with first quarter 2015 reflecting commercial real estate and commercial loan growth offset in part by a decrease in consumer loans, including runoff in the non-strategic portfolio.

Investment Securities

At quarter end

Average for the quarter ended

Investment securities balances at March 31, 2016 increased $2.0 billion compared with December 31, 2015 and average balances for the first quarter increased $2.4 billion compared with the fourth quarter. Portfolio purchases were primarily agency residential mortgage-backed securities, other debt securities and asset-backed securities. First quarter 2016 period end and average investment securities increased $11.8 billion and $13.1 billion, respectively, compared with first quarter 2015. The available for sale investment securities balance included a net unrealized pretax gain of $1.0 billion at March 31, 2016 compared with $.5 billion at December 31, 2015 and $1.1 billion at March 31, 2015, representing the difference between fair value and amortized cost. The increase in the unrealized pretax gain from year end 2015 was primarily due to lower market interest rates.

Interest-earning deposits with banks, primarily with the Federal Reserve Bank, were $29.5 billion at March 31, 2016, a decrease of $1.1 billion compared with December 31, 2015. Average balances of $25.5 billion for the first quarter declined $6.0 billion from the fourth quarter reflecting higher average investment securities and loans and lower average deposits and borrowed funds. First quarter 2016 period end interest-earning deposits with banks declined $1.7 billion compared with first quarter 2015, while average balances decreased $4.9 billion.

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 7

Total deposits at March 31, 2016 grew $1.4 billion compared with December 31, 2015 reflecting growth in consumer deposits partially offset by lower commercial deposits. Average deposits decreased $.8 billion in the first quarter of 2016 compared with the fourth quarter. Seasonally lower balances of average commercial noninterest-bearing deposits were partially offset by growth in average consumer interest-bearing demand deposits. Additionally, average savings deposits grew reflecting in part a shift from money market deposits to new relationship-based savings products. Period end and average first quarter 2016 deposits increased $13.9 billion and $13.0 billion, respectively, compared with first quarter 2015 due to overall strong deposit growth.

Borrowed Funds

Borrowed funds at March 31, 2016 decreased $.4 billion compared with December 31, 2015 and average borrowed funds decreased $1.4 billion in the first quarter compared with the fourth quarter primarily due to lower bank borrowings, as well as lower average commercial paper balances in the average comparison. First quarter 2016 period end and average borrowed funds each decreased $2.7 billion compared with first quarter 2015. In both comparisons, declines in commercial paper and bank borrowings were partially offset by higher bank notes and senior debt. The average balance comparison was further impacted by lower federal funds purchased and repurchase agreements.

Capital

Common shareholders equity

* Ratios estimated

PNC maintained a strong capital position. Common shareholders equity increased compared with December 31, 2015 due to growth in retained earnings and higher accumulated other comprehensive income primarily related to net unrealized securities gains. These increases were partially offset by share repurchases. The transitional Basel III common equity Tier 1 capital ratios were calculated using the regulatory capital methodologies, including related phase-ins, applicable to

PNC Reports First Quarter 2016 Net Income of $943 Million, $1.68 Diluted EPS Page 8

PNC during 2016 and 2015 using the standardized approach. The pro forma ratios were also calculated based on the standardized approach. See Capital Ratios in the Consolidated Financial Highlights.

PNC returned capital to shareholders through share repurchases and dividends. During the first quarter of 2016, PNC repurchased 5.9 million common shares for $.5 billion. PNC has repurchased a total of 23.8 million common shares for $2.2 billion under current share repurchase programs of up to $2.875 billion for the five quarter period ending in the second quarter of 2016. These programs include repurchases of up to $375 million during this five quarter period related to stock issuances under employee benefit-related programs.

PNC paid dividends on common stock of $.3 billion, or 51 cents per common share, during the first quarter of 2016. On April 4, 2016, the PNC board...


More