Reflecting an ongoing trend, spread income declined during the quarter, reflecting lower loan yields and securities balances, and a reclassification of certain commercial facility fees as noninterest incomes. Excluding the reclassification of these fees, spread income was down 1.6% in 2Q'14. PNC also reported a sizeable 14 basis points (bps) decline in the net interest margin (NIM) due to lower asset yields and actions taken to improve liquidity, with 5 bps attributed to the reclassification of these fees.
Excluding the impact of purchase accounting accretion on the NIM, PNC's core NIM declined 10 bps a linked-quarter basis to 2.92%, below the average for the large regional banks. Although PNC's margin continues to compress and below peer levels, PNC has good revenue diversity, with noninterest income comprising 44% of revenues, insulating the company somewhat from a very challenging interest rate environment.
Noninterest income increased 6% on a linked-quarter basis mainly reflecting fee income growth, in part due to the commercial facility fees classification change. PNC reported additional gains on the sale of VISA shares in 2Q'14, with
PNC reported a 3% increase in noninterest expenses due to seasonally higher personnel expenses and incentive compensation costs, as well as increased marketing costs. PNC expects that expenses may be up low single digits in 3Q'14 relative to 2Q'14.
Credit quality continues to improve for PNC, and the company reported very low net charge-offs (NCOs) of just 29 bps during 2Q'14. Reflecting the continued improvement in credit quality, provision expense declined 23% during the quarter. Quarterly earnings once again benefitted from a loan loss reserve release with NCOs exceeding provision expenses, though at only 5% of pre-tax income, it is not considered to be a driver of quarterly earnings.
PNC continued to enhance its liquidity position in anticipation of new regulatory requirements, namely the
PNC also reported a further increase in its estimated fully phased-in Tier 1 common ratio (CET1) under Basel III standardized approach rules, up 30 bps to an estimated 10% CET1 ratio at
Additional information is available at 'www.fitchratings.com'.
Source: Fitch Ratings
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