Fitch: PNC's 3Q'16 Results Demonstrate Consistency
Spread income increased modestly on a linked-quarter basis primarily attributed to an additional day during the quarter, as well as higher securities and loans partially offset by lower securities yields.
The net interest margin (NIM) declined 2bps to 2.68% during the quarter, while the core NIM, excluding purchase accounting accretion, declined 2bps to 2.61% driven by lower average rates on net securities purchases. While PNC's margin remains below large regional peers, its earnings profile benefits from high levels of non-interest income. PNC expects purchase accounting accretion to be approximately $50 million next quarter.
Loan growth was modest during the quarter at less than 3% on an period-end annualized basis, with growth primarily in corporate banking, automobile, and CRE, partially offset by continued declines in home equity and government guaranteed education lending.
Non-interest income was flat from a very strong 2Q16. Higher asset management (which includes earnings from PNC's investment in BlackRock) and deposit service charges were offset by lower consumer services, residential mortgage, and corporate services. This quarter includes no Visa gains, while last quarter included $82 million in gains on Visa sales.
Non-interest expenses increased 1.4% on a sequential basis reflected the new FDIC deposit insurance surcharge of approximately $25 million, the absence of 2Q16 residential mortgage foreclosure reserve releases, and higher personnel and marketing expenses. PNC expects non-interest income to be up low single digits next quarter as the company continues to make investments in technology, as well as executing on the retail banking and home lending strategic initiatives.
PNC also reported a 31% decrease in loan loss provisions reflecting stabilization in the energy portfolio. PNC exposure to the energy sector is on the lower end of the large bank universe. At Sept. 30, 2016, PNC reported $2.5 billion of oil and gas outstandings, or around 1.2% of total loans.
NCOs increased to a still low 29bps on an annualized basis during the quarter, while non-performing assets declined 6% on a sequential basis. Higher commercial loan NCOs across various industries were partially offset by lower NCOs in the energy sector.
PNC reported its estimated fully phased-in Common Equity Tier 1 ratio (CET1) under Basel III standardized approach rules was a solid 10.2%, unchanged from the prior quarter. PNC disclosed that its Liquidity Coverage Ratio exceeded 100% for both PNC and PNC Bank, N. A., above the 2017 fully phased-in requirement of 100%.
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