01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
PNC Financial Services Group reported 2016 net income of $4.0 billiona, or $7.30 per diluted common share, down 4% from $7.39 in 2015.
The decline was driven by a higher provision for credit losses ($433 millionb versus $255 million, largely tied to energy-related loans) and a 3% decline in noninterest income, partially offset by a 1% increase in net interest income. Total revenue was essentially flat at $15.2 billion, and noninterest expense was stable at $9.5 billion, reflecting continued expense discipline. The balance sheet grew modestly, with total assets of $366.4 billion, loans up 2% to $210.8 billion, and deposits up 3% to $257.2 billion.
Capital returns remained substantial. PNC returned $3.1 billionc to shareholders in 2016, including $2.0 billion of share repurchases and $1.1 billion of common dividends. The quarterly dividend was raised to $0.55 per share in August 2016, and the company announced a $300 million increase in its repurchase program for mid-2016 to mid-2017.
Capital ratios remained strong, with a Transitional Basel III common equity Tier 1 ratio of 10.6%d and a pro forma fully phased-in ratio of an estimated 10.0%. Both PNC and PNC Bank were classified as well capitalized at year-end.
Management guided to mid-single-digit loan growth, mid-single-digit revenue growth, and low-single-digit expense growth for 2017, with an effective tax rate of roughly 25% to 26% absent tax reform. Key watch items include the energy loan exposure, the outcome of an arbitration on the Community Bank of Northern Virginia mortgage litigation, ongoing interchange litigation involving Visa and MasterCard, and the Federal Reserve's CCAR review of the 2017 capital plan.
02—Key points
Key Highlights
- Net income of $4.0 billion ($7.30 diluted EPS) declined 4% year over year, with total revenue of $15.2 billion roughly flat.
- Provision for credit losses rose to $433 million from $255 million, primarily reflecting energy-related loan deterioration in oil, gas, and coal.
- Net interest income rose 1% to $8.4 billion, with net interest margin of 2.73% versus 2.74% in 2015.
- Noninterest income fell 3% to $6.8 billion, largely due to lower Visa share gains and other noninterest income, while fee income grew.
- Returned $3.1 billion to shareholders in 2016 through $2.0 billion of buybacks and $1.1 billion of dividends; quarterly dividend raised to $0.55.
- Capital position remained strong, with a Transitional Basel III CET1 ratio of 10.6% and a pro forma fully phased-in CET1 ratio of 10.0%.
- 2017 guidance calls for mid-single-digit loan and revenue growth, low-single-digit expense growth, and an effective tax rate of about 25% to 26%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $15.16B$15.22B | −0.4% |
| Interest Expense | $1.26B$1.04B | +20.7% |
| Net Income | $3.98B$4.14B | −3.8% |
| EPS (Basic) | $7.42$7.52 | −1.3% |
| EPS (Diluted) | $7.30$7.39 | −1.2% |
| Shares Outstanding (Basic) | 494.00M514.00M | −3.9% |
| Shares Outstanding (Diluted) | 500.00M521.00M | −4.0% |
05—Questions
Frequently Asked Questions
Why did PNC's earnings decline in 2016 despite stable revenue?
Diluted EPS fell to $7.30 from $7.39 mainly because the provision for credit losses rose to $433 million from $255 million, driven by energy-related loans, and noninterest income declined 3%. Net interest income grew 1%, and noninterest expense was essentially flat at $9.5 billion.
How much capital did PNC return to shareholders, and what are its capital ratios?
PNC returned $3.1 billion in 2016: $2.0 billion through repurchases of 22.8 million shares and $1.1 billion in common dividends. Its Transitional Basel III CET1 ratio was 10.6%, and its pro forma fully phased-in CET1 ratio was an estimated 10.0%, both above well-capitalized requirements.
What is the outlook for PNC in 2017?
For full-year 2017, PNC expects loan growth and revenue growth in the mid-single digits, noninterest expense growth in the low single digits, and an effective tax rate of about 25% to 26% absent tax reform. Management also assumes two 25 basis point Federal Reserve rate hikes in 2017.
What are the main legal and credit risks highlighted in the filing?
Key items include energy-sector loan losses (oil and gas loans totaled $2.4 billion), the Community Bank of Northern Virginia mortgage litigation now in binding arbitration with a $24 million to $70 million range, the ongoing Visa and MasterCard interchange litigation, and the pre-need funeral trust judgment of $289 million under appeal. Disclosed matters carry reasonably possible losses in excess of accruals of up to about $475 million.
How did PNC's loan and deposit franchise change in 2016?
Total loans rose 2% to $210.8 billion, led by commercial lending (up $4.4 billion, or 3%) and commercial real estate, while consumer loans were roughly flat as home equity and education loans declined. Total deposits grew 3% to $257.2 billion, driven by demand and savings deposits, with a shift from money market accounts to relationship-based savings products.
06—Continue