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What Helped PNC Financial Command Premium Valuations in 4Q16?

PART:
1 2 3 4 5
Part 3
What Helped PNC Financial Command Premium Valuations in 4Q16? PART 3 OF 5

BlackRock Is Benefiting PNC Financial’s Non-Interest Income

Non-interest income

PNC Financial Services (PNC) generates its non-interest income through consumer services, asset management, residential mortgages, deposit service charges, corporate services, and net securities gains.

PNC Financial’s non-interest income for 3Q16 rose $21 million compared to 3Q15. This rise was mainly due to higher asset management, corporate services, residential mortgage, and service charges.

BlackRock Is Benefiting PNC Financial&#8217;s Non-Interest Income

BlackRock Is Benefiting PNC Financial&#8217;s Non-Interest Income

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Sequentially, the company’s income rose $8 million, aided by higher asset management fees and service charges and partially offset by fewer consumer services, corporate services, and residential mortgages.

PNC’s asset management revenue rose to $404 million in 3Q16, including earnings from its equity investment in BlackRock (BLK), marking a rise of $27 million due to strong equity markets. On the other hand, PNC’s corporate service fees fell $14 million to $389 million, mainly due to a lower benefit from commercial mortgage servicing rights and capital markets–related revenue and partially offset by higher treasury management fees. The company’s residential mortgage revenue was also affected negatively by lower net hedging gains on mortgage servicing rights.

Major players in the residential mortgage and asset management (VFH) space JPMorgan Chase (JPM) and Bank of New York Mellon (BK) are focusing on improving their holdings performances in bids to attract more capital.

Interest income

PNC’s net interest income is expected to rise in 4Q16 and 2017 as the Federal Reserve raises rates on improved economic performance. In 3Q16, PNC’s net interest income rose $27 million to $2.1 billion, mainly due to an additional day in the quarter, resulting in higher interest and higher securities and loan balances. The rise was partially offset by lower securities yields.

In 3Q16, PNC’s net interest margin fell to 2.68% from its 2Q16 margin of 2.70%. This fall was driven by lower average rates on its net securities purchases and the impact of prepayments. PNC’s total revenue in 3Q16 rose $35 million year-over-year to $3.8 billion.

In the next part of the series, we’ll study PNC’s balance sheet and capital position.

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