PNC Financial Services Expands Commercial Lending

by Steve Murphy 0

In these challenging times for financial institutions, primarily (but not exclusively) resulting from a potpourri of exogenous factors, it is a nice respite to read about reasonably good financial results, certainly from the purview of sober expectations. PNC released their 2Q ’16 results of $989 million in net income, which was 5% down YOY, but exceeded analyst EPS estimates by roughly 3%. The good news comes from several components, including increased fee income (always a welcome revenue item), lower credit loss provisions, and increased commercial loans.

PNC chairman and CEO William S. Demchak stated that “We had a good second quarter against a backdrop of global uncertainty. We grew fee income, along with average loans and deposits, and we announced plans to return additional capital to our shareholders in the coming year. In the wake of the Brexit vote, as lower interest rates weigh on future performance, we remain focused on executing against our strategic priorities to create long-term shareholder value without compromising our risk profile or balance sheet.”

This is the Dodd-Frank/Basel III era of rebalanced bank portfolios and safety in liquidity, which has caused some forced and some chosen lending conservatism. So the fact that both C&I (mostly large corporates) as well as CRE loans were up is welcome news. The liquidity coverage ratio (LCR) changes of 2015 had impact on deposit definitions (especially operating deposits) and asset quality, causing institutions to re-think some lines of business. By virtue of the fact that PNC’s LCR estimates are substantially in excess of regulatory requirements (exceeding is a good thing),they create lending opportunities. This is positive news and indicates good risk management practices are in place, which will potentially lead to increased revenue opportunities heading into H2

The estimated liquidity coverage ratio exceeded 100% for both PNC and PNC Bank, where the requirement is 80% according to the new regulatory short-term liquidity standard.

These are not normal times, however, so uncertainty still reigns supreme, but strong portfolio management is one of the best elixers for abnormal times.

Overview by Steve Murphy, Director, Commercial and Enterprise Advisory Service at Mercator Advisory Group

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