Reference the forensic analysis for my in depth opinion on this company.
PNC Financial Services – Q2 2008
Income statement analysis
PNC’s revenues increased 19% y-o-y to $2,039 mn in 2Q2008 over $1,713 mn in 2Q2007 off 32% increase in net interest income and 9% increase in non-interest income. Net interest income increased 32% to $977 mn in 2Q2008 from $738 mn in 2Q2007 primarily due to 1.5% increase in interest income to 1.5% and 26.5% decline of interest expense to $600 mn as the bank benefitted from lower cost of funding. Decline in interest rates and lower funding cost helped the bank to expand its net interest margin to 3.47% from 3.03% in 2Q2007. PNC’s non-interest income increased 9% to $1,062 mn in 2Q2008 from $975 mn in 2Q2007 off increase in funds servicing, asset management, corporate services and other partially offset by decline in customer service. Bank's provision increased more than three-fold to $186 mn in 2Q2008 as a result of deteriorating credit conditions. PNC’s non-interest expense increased 7.2% to $1,115 mn in 2Q2008 primarily owing to higher occupancy, marketing and equipment expenses. However banks efficiency ratio improved to 55% in the current quarter from 61% previously as revenue growth outpaced expense growth. Overall banks net income increased 20% to $505 mn in 2Q2008 over $423 mn in 2Q2007 while EPS increased to $1.45 up from $1.22 in 2Q2007.
PNC’s non-performing loans continued to increase in 2Q2008 rising to 0.95% from 0.81% and 0.36% at the end of 1Q2008 and 2Q2007. As a result of increased defaults, net Charge-offs to loans increased to 0.62% in 2Q2008 from 0.20% in 2Q2007. PNC’s NPA’s to shareholder’s equity stood at 4.9% at the end of 2Q2008, from 1.79% at the end of 2Q2007, a 174% increase. It is our belief that PNC, due to one of the lowest Tier 1 capitalizations in its peer group, may soon be forced to raise capital, thus diluting existing shareholders.