DBRS Confirms PNC Financial Services Group, Inc. at A (high); Stable Trend

DBRS, Inc. (DBRS) confirmed the ratings of PNC Financial Services Group, Inc. (PNC or the Company), including the Company’s Long-Term Issuer Rating of A (high). At the same time, DBRS confirmed the ratings of its primary banking subsidiary, PNC Bank, N.A. (the Bank). The trend on all ratings is Stable. The Intrinsic Assessment (IA) for the Bank is AA (low), while its Support Assessment remains SA1. The Company’s Support Assessment is SA3 and its Long-Term Issuer Rating is positioned one notch below the Bank’s IA.

KEY RATING CONSIDERATIONS
DBRS’s confirmation of PNC’s ratings reflects its strong banking franchise and diversified business model, which underpins the Company’s stable and sustainable earnings. The ratings also consider PNC’s solid funding, liquidity and capitalization, as well as its conservative risk profile, but also consider expected normalizing credit trends as the credit cycle continues to mature.

RATING DRIVERS
Sustained positive operating leverage, while continuing to enhance the franchise, could result in a positive rating action. Conversely, sustained deterioration in core earnings, and/or weakening balance sheet fundamentals could place negative pressure on the rating.

RATING RATIONALE
PNC is the 6th largest bank in the U.S. by deposits, with top six deposit market share positions in nine states and D.C., including a dominant 23% market share in Pennsylvania. The Company provides a wide range of products and services, many of which are offered nationally, highlighted by its strong corporate and institutional banking businesses and significant investment in BlackRock. DBRS notes that PNC’s business mix generates a considerable amount of fee income (typically around 40-45% of total revenue), providing stability to earnings.

PNC generated $5.3 billion of net income in 2018, representing a strong return on average assets (ROA) of 1.41%. Bottom line results benefited from positive operating leverage and a lower tax rate following U.S. tax reform. Specifically, total revenues increased 5% versus 2017, reflecting net interest margin expansion driven by higher interest rates, as loans and deposits increased modestly compared to the prior year. Fee income trends remained strong led by another strong performance from BlackRock and Corporate Services. Noninterest expenses, excluding the significant non-core items in 4Q17, increased somewhat in 2018, reflecting deliberate investment in businesses, technology and people.

PNC’s balance sheet fundamentals, including asset quality, funding and liquidity and capitalization remained strong and stable with recent period results. Providing substantial financial flexibility, the Company’s 22% economic interest in BlackRock had an inferred unrealized gain of $8.4 billion as of the end of 3Q18.

Headquartered in Pittsburgh, PNC Financial Services Group, Inc. reported total assets of $382 billion as of December 31, 2018.

The Grid Summary Scores for PNC are as follows: Franchise Strength – Very Strong/Strong; Earnings Power – Strong; Risk Profile – Strong; Funding & Liquidity – Strong; Capitalisation – Very Strong/Strong.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Global Methodology for Rating Banks and Banking Organisations (July 2018), which can be found on our website under Methodologies.

The primary sources of information used for this rating include company documents and SNL Financial. DBRS considers the information available to it for the purposes of providing this rating was of satisfactory quality.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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