PNC Financial Services Group Inc.
) second quarter 2012 earnings per share of 98 cents missed the
Zacks Consensus Estimate of $1.09 on higher provisions for
residential mortgage loan repurchase obligations. Results were also
below the earnings per share of $1.44 in the prior quarter and
$1.67 in the year-ago quarter.
Earnings included 54 cents per share negative impact from the
provision for residential mortgage loan repurchase obligations.
Moreover, redemption of trust preferred securities and integration
costs also reduced earnings per share by 16 cents and 6 cents,
Excluding those impact, the company would have earned $1.74 per
share in the quarter under review. Also, excluding the impact of
the comparable items, earnings came in at $1.66 per share in the
prior quarter and $1.71 per share in the year-ago quarter.
Notably, PNC Financial anticipates elevated levels of
residential mortgage loan repurchase demands as a result of a
change in behavior and demand patterns of two government-sponsored
enterprises, FNMA and FHLMC. These are largely associated with
loans sold in 2006 through 2008 in agency securitizations.
Quarter in Detail
Total revenue for the quarter at PNC Financial came in at $3.6
billion, down 3% sequentially. Moreover, it fell short of the Zacks
Consensus Estimate of $3.7 billion. While the company experienced a
solid growth in net interest income as well as in consumer and
corporate client fee income, the positives were offset by the
provision for residential mortgage repurchase obligations.
Net interest income was $2.5 billion, up 10% sequentially. The
full quarter benefit from the RBC Bank (USA) acquisition, organic
loan growth and lower funding costs contributed to the uptick in
net interest income.
Moreover, PNC Financial's net interest margin climbed 18 basis
points (bps) sequentially to 4.08%. Higher yield on loans resulting
from the full quarter benefit of the RBC Bank acquisition
attributed to the expansion of the net interest margin.
However, non-interest income at PNC Financial fell 24%
sequentially to $1.1 billion. While the company experienced
sequential increases in revenues from the consumer and corporate
clients, the increase in provision for residential mortgage loan
repurchase obligations primarily pulled the non-interest income
figure down in the quarter.
Also, PNC Financial's non-interest expense came in at $2.6
billion, up 8% sequentially. Results comprised of noncash charges
related to redemption of trust preferred securities, a full quarter
of operating expense for the RBC Bank acquisition and integration
Credit quality was a mixed bag in the quarter at PNC Financial.
Nonperforming assets decreased 4% sequentially to $4.2 billion in
the quarter, mainly due to decline in commercial real estate
nonperforming loans and other real estate owned. Nonperforming
assets to total assets were 1.39% as of June 30, 2012, down from
1.47% as of March 31, 2012 and 1.70% as of June 30, 2011.
Net charge-offs fell 5% sequentially to $315 million in the
quarter. Sequentially, decreases in commercial real estate and home
equity loan net charge-offs were partly offset by increases mainly
in commercial loan net charge-offs. Net charge-offs for the
reported quarter came at 0.71% of average loans on an annualized
basis, down from 0.81% reported in the prior quarter and 1.11% in
the year-ago quarter.
However, PNC Financial's provision for credit losses during the
quarter was $256 million, up 38% sequentially. Results reflected
credit provisions associated with the RBC Bank acquisition.
Capital ratios remained stable in the quarter at PNC Financial.
Higher risk-weighted assets from loan growth offset the positive
impact from growth in retained earnings and therefore, as of June
30, 2012, PNC Financial's Tier 1 common capital ratio was an
estimated 9.3%, flat sequentially.
Moreover, the Tier 1risk-based capital ratio was an estimated
11.4% as of June 30, 2012, unchanged sequentially as the impact of
trust preferred securities redemptions were offset by the issuance
of preferred stock.
As of June, 2012, total assets under administration were $214
billion, down 5% sequentially, primarily resulting from lower
equity markets, partially offset by strong sales performance and
Capital Deployment Update
Recently, PNC Financial declared a quarterly common stock cash
dividend of 40 cents to be paid on August 5, 2012. Moreover, during
the second quarter, the company bought back shares worth $50
million under its current share buyback authorization.
Notably, in April 2012, PNC Financial announced a 14% hike in
its quarterly common stock cash dividend to 40 cents from 35 cents.
That increased dividend was paid on May 5, 2012. At that time, the
company also announced plans to buyback up to $250 million of
common stock under its existing 25 million share repurchase program
through the rest of 2012.
Performance by peer
Among PNC Financial's peers,
) has come up with an encouraging result in the second quarter of
2012. Aided by a growth in revenue and lower provision for credit
losses, the company reported earnings per share of 71 cents, which
breezed past the Zacks Consensus Estimate of 69 cents.
) reported earnings per share of 73 cents, comfortably beating the
Zacks Consensus Estimate of 62 cents. Results reflected growth in
its top line. Comerica experienced growth in its average loans,
helped by higher average commercial loans. Average deposits also
advanced in the quarter. Furthermore, the company experienced
growth in fee income. Also, expenses were well-controlled.
) will be reporting its second-quarter 2012 earnings on July 19,
before the market opens.
Going forward, we believe PNC Financial is well positioned to
grow given its diverse revenue mix, balance sheet strengthening
efforts, strategic acquisitions and solid capital levels. The RBC
Bank (USA) acquisition is expected to be accretive to 2012
earnings, excluding integration costs. Stress test clearance,
dividend hikes and share buybacks also serve as positive
Yet, a protracted economic recovery, continued low interest rate
environment, increased regulatory headwinds as well as elevated
mortgage repurchase costs seem to somewhat limit growth in
profitability of PNC Financial.
PNC Financial shares maintain a Zacks #3 Rank, which translates
into a short-term Hold recommendation.
BB&T CORP (BBT): Free Stock Analysis Report
COMERICA INC (CMA): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
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