Please ensure Javascript is enabled for purposes of website accessibility

Q1 Earnings Surge 13% at PNC Financial

By John Maxfield - Apr 17, 2017 at 7:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Pittsburgh-based bank turned in another solid performance.

PNC Financial (PNC -1.49%) joined a handful of other large banks last week to kick off first-quarter earnings season for the bank industry. The $371 billion lender reported a 13% increase to its bottom line, making it the third major bank to notch double-digit earnings growth for the first three months of the year -- the other two being JPMorgan Chase and Citigroup.

"PNC had a good start to the year," said CEO William Demchak in prepared remarks. "We grew loans and revenue, and we managed expenses well while continuing to invest in our businesses and to enhance innovation. As we progress through 2017, we are well positioned to benefit should environmental factors, including interest rates, turn more favorable."

PNC Financial Chairman and CEO William Demchak.

PNC Financial Chairman and CEO William Demchak. Image source: PNC Financial.

Two things in particular helped to fuel the rise in PNC's earnings. The first was its noninterest income, which climbed $157 million, or 10%, compared with the year-ago quarter. Higher asset management revenue and fees from corporate customers were the primary drivers of this, growing $62 million and $68 million, respectively.

PNC was also able to set aside less money in the first quarter in anticipation of future loan losses. Its provision for credit losses, which has the same impact on a bank's net income as expenses do, fell $64 million, or 42%. This was helped by the year-ago period, during which loan loss provisions rose in anticipation of loan defaults throughout the energy sector as oil prices dropped below $30 a barrel.

Brent Crude Oil Spot Price Chart

Brent Crude Oil Spot Price data by YCharts.

In addition to these two factors, PNC also reported a boost to its net interest income as a result of the Federal Reserve's decision to raise the fed funds rate twice over the past four months -- in December and March. The impact is most noticeable on PNC's net interest margin, its interest income as a percent of interest-earning assets, which expanded to 2.77% for the first quarter of 2017, compared with 2.69% for the fourth quarter and 2.75% for the first quarter of 2016.

The one aspect of PNC's first-quarter performance that weighed on its earnings growth concerned its noninterest expenses. The costs to run the bank increased $121 million, or 5.3%, in the first quarter compared with the year-ago period. Yet because its revenue grew faster, PNC nevertheless reported positive operating leverage, which is more important for a bank's long-term performance than its absolute expense base in any given period.

All told, PNC earned $963 million worth of net income applicable to common shareholders in the three months ended March 31. That equated to a 1.19% return on average assets, which continues to comfortably exceed the standard industry benchmark of 1%.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The PNC Financial Services Group, Inc. Stock Quote
The PNC Financial Services Group, Inc.
PNC
$157.37 (-1.49%) $-2.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
319%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.