PNC Financial Group (PNC) reported third quarter net income of $1.00 per share, substantially ahead of the Zacks Consensus Estimate of 30 cents per share. Results were helped by rising interest and fee income due to its acquisition of National City, and expense controls overshadowing loan losses.

Total revenues totaled $4.0 billion, an increase from $1.7 billion last year, aided by strong net interest income and non-interest income.

Net interest income totaled $2.2 billion compared with $1.0 billion last year. The net interest margin was 3.76% compared with 3.46% last year. The increase in net interest income and margin was due to a decline in deposit costs and the reduction of high cost non-relationship certificates of deposit as well as lower cost of borrowed funds.

Non-interest income was $1.8 billion compared with $0.7 billion last year. Non-interest income increased due to an increase in asset management revenue, consumer service fees and service charges on deposits.

Non-interest expense was $2.4 billion compared with $1.1 billion last year. The improvement came in due to cost savings of approximately $200 million from the acquisition of National City Corporation.

While credit quality deterioration continued as expected during the quarter, reflecting the weak economy, PNC’s pretax pre-provision earnings of $1.7 billion exceeded the provision for credit losses of $1.0 billion. The allowance for loan and lease losses to total loans was 2.99% compared with 1.40% last year. PNC increased loan loss reserves beyond net charge-offs. Net charge-offs were 1.59% of average loans, compared with 0.66% last year. Non-performing assets increased during the quarter to 3.50% of total loans, compared to 1.16% last year.

We believe PNC has one of the more attractive business mixes in the banking industry, which will likely serve the company well in a tougher macro backdrop for regional banks. PNC has been disciplined on credit and is poised to generate positive operating leverage.

Thus we recommend a Neutral rating on the shares.
Read the full analyst report on “PNC”
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