PNC's Efficiency Ratio Improves To 57% From 60% As Expenses Fall 8% And Loans Grow
Net income rose to $2.1 billion in the third quarter even as noninterest income fell 15% from the second quarter.
PNC's third-quarter net income was $2.1 billion, or $4.97 per diluted share, against $2,055 million and $4.81 in the second quarter, according to an 8-K filed Thursday. Excluding integration costs and significant items, earnings were $5.09 a share, up $0.24 from the prior quarter.
Profit rose even though revenue fell: noninterest expense dropped 8% and net interest income grew, which more than covered a smaller quarter for fees.
The finding: lower costs, bigger loan book
Net interest income, the gap between what the bank earns on loans and pays on deposits, rose 2% from the second quarter to $4.2 billion, up $99 million. The company credited commercial loan growth and higher yields, partly offset by higher funding costs. Net interest margin was 2.94%, down from 2.96%.
Noninterest expense fell 8% to $3.8 billion, or 3% excluding integration costs and significant items. PNC attributed the adjusted decline to lower compensation and expense discipline. The efficiency ratio improved to 57% from 60% in the second quarter.
Average loans rose $9.0 billion, or 2%, to $372.2 billion. Average commercial loans grew $10.4 billion, or 4%, on new production and higher utilization, while average consumer loans fell $1.4 billion. Return on average tangible common equity, a measure of profit against shareholder capital stripped of intangibles, was 18.3%, up from 17.9%.
The catch: fees, Visa items and charge-offs
Revenue of $6.6 billion fell $313 million, or 5%, as noninterest income dropped 15%. Fee income fell 6% to $2.1 billion, mainly because second-quarter capital markets and advisory revenue was elevated; that line fell $144 million.
The second quarter also carried a $448 million gain tied to a Visa share exchange. Integration costs from the FirstBank acquisition were $36 million, down from $127 million.
Net loan charge-offs were $257 million, up from $226 million, and included $35 million from moving a $1.4 billion student loan portfolio to held-for-sale. The provision for credit losses was $189 million, stable against $191 million. Nonperforming loans rose 8% to $2.2 billion on commercial loans, while delinquencies fell 9% to $1.3 billion.
Capital and what to watch
The common equity tier 1 capital ratio was an estimated 9.8%, versus 9.9% at June 30. PNC returned $1.4 billion to shareholders: $0.8 billion of dividends and $0.6 billion of buybacks. It expects fourth-quarter repurchases to approximate third-quarter levels.
The board declared a $2.00 quarterly dividend, payable November 5 to holders of record on October 14. Executives hold an investor call at 10:00 a.m. Eastern Thursday.
CEO Bill Demchak said PNC is "well positioned, and remain confident in our long-term outlook."
Sources
- 8-K Filing — PNC FINANCIAL SERVICES GROUP, INC. (PNC) — SEC EDGAR
- Exhibit q32026financialhighlightsa.htm — PNC FINANCIAL SERVICES GROUP, INC. 8-K exhibit — SEC EDGAR
- Exhibit q32026financialsupplement.htm — PNC FINANCIAL SERVICES GROUP, INC. 8-K exhibit — SEC EDGAR
- Lower Expenses & Higher NII to Support PNC Financial's Q3 Earnings — Yahoo Finance
