PNC says BBVA deal won’t derail organic growth plans

PNC Financial Services Group in Pittsburgh will not pause its organic growth strategy while it ties up its deal to buy BBVA USA.

In recent years, the $466.7 billion-asset PNC has added commercial offices in new markets such as Boston and Phoenix while also opening retail branches in markets such as Dallas and Kansas City, Mo. While discussing the company’s fourth-quarter earnings on Friday, executives said PNC would continue opening offices, except in markets where BBVA already has a presence.

Bloomberg

“We're not going to wait to close [the acquisition] before we think about the totality of the products and services we want in a particular market,” Chairman and CEO William Demchak said in response to an analyst’s question.

PNC announced in November that it would pay $11.6 billion for the U.S. operations of Banco Bilbao Vizcaya Argentaria. The $104 billion-asset BBVA is based in Houston and was formerly known as Compass Bancshares, until its Spanish parent company bought and rebranded it.

Executives provided few other updates on the pending deal, which would be PNC’s first bank acquisition since it bought Royal Bank of Canada’s U.S. operations in March 2012.

PNC reported net income of $1.5 billion in the fourth quarter, up 5.4% from the same period in 2019, as improved credit quality and strong fee income helped to offset weaker net interest income and total revenue.

Earnings per share totaled $3.26, beating the mean estimate of $2.61 according to analysts surveyed by FactSet Research Systems. Total revenue declined 3% to $4.2 billion.

PNC recorded a negative provision for credit losses of $254 million, compared with provisions of $52 million and $2.5 billion in the third and second quarters, as economic conditions have improved since the start of the coronavirus pandemic.

Noninterest income totaled $1.8 billion, a 3% decrease from the year-ago quarter. Higher asset management, corporate services and residential mortgage fee income helped to offset declining deposit service charges and other noninterest income.

Net interest income fell 3% to $2.4 billion due to lower yields on earning assets. PNC’s net interest margin stood at 2.32% compared with 2.78% a year ago.

Total loans at Dec. 31 were $241.9 billion, up 1% on a yearly basis. While consumer loans fell 6% to $74.7 billion, commercial loans rose 4% to $167.2 billion, thanks largely to PNC’s participation in the Paycheck Protection Program.

Net loan charge-offs totaled $229 million in the fourth quarter, up 10% from a year ago and 48% from the prior quarter. Nonperforming loans totaled $2.3 billion, up 40% from a year ago and 10% from the third quarter.

Chief Financial Officer Robert Reilly described charge-offs as not material, but said he expects to see further stress in certain industries hit hard by social distancing measures, particularly recreation and travel.

However, PNC also said that about $105 million worth of nonaccrual loans had returned to performing status during the fourth quarter.

“Some of these companies have adapted … to the new economy and are actually performing well,” Reilly said. “It’s as simple as that.”