PNC Financial Services Group Inc.
) fourth quarter 2012 adjusted earnings per share of $1.71
significantly exceeded the Zacks Consensus Estimate of $1.37.
However, results were below the earnings per share of $1.74
recorded in the prior quarter.
Considering the impact of certain actions taken in the fourth
quarter, associated with the residential mortgage banking
activities and other items, the company reported net income of
$664.0 million or $1.24 per share in the quarter under review.
Also, considering the impact of certain non-recurring items,
earnings came in at $876.0 million or $1.64 per share in the
Better-than-expected results reflected improved net interest
income. Moreover, lower nonperforming assets, reduced charge-offs
along with healthy capital levels were the positives. However, a
decline in the non interest income and an increase in provision
for credit losses were the concerns.
For full year 2012, PNC Financial reported net income of $2.8
billion or $5.30 per share, down from net income of $3.0 billion
or $5.64 per share. Results also fell short of the Zacks
Consensus Estimate of $5.48 per share.
Quarter in Detail
Total revenue was recorded at $4.1 billion, almost stable
sequentially. Moreover, revenue marginally beat the Zacks
Consensus Estimate of $3.9 billion. Also, exclusive of the impact
of the provision for residential mortgage repurchase obligations
and gains on sales of
) shares in the fourth and third quarters of 2012, total revenue
advanced 5% sequentially in the reported quarter.
Net interest income came in at $2.4 billion, increasing 1%
sequentially. Core net interest income remained stable as loan
growth was offset by the impact of lower core yields on interest
earning assets. Moreover, net interest margin increased 3 basis
points (bps) sequentially to 3.85%.
However, non-interest income declined 3% sequentially to $1.6
billion. The decline reflected higher provision for residential
mortgage repurchase obligations along with a reduced residential
mortgage banking income.
Also, the company's non-interest expense was $2.8 billion, up
7% from the last quarter. The hike reflected increase in
personnel costs along with increased expenses for residential
mortgage foreclosure-related matters. These were partially offset
by lower non-cash charges for unamortized discounts related to
the redemption of trust preferred securities.
Credit quality was mixed in the quarter at PNC Financial.
Nonperforming assets decreased 6% sequentially to $3.8 billion,
mainly due to decreases in commercial real estate and commercial
nonperforming loans partly offset by increases in consumer
lending nonperforming loans. Nonperforming assets to total assets
were 1.24% as of Dec 31, 2012, down from 1.34% as of Sep 30, 2012
and 1.53% as of Dec 31, 2011.
Net charge-offs declined 6% sequentially to $310 million in
the quarter. Net charge-offs for the reported quarter came at
0.67% of average loans on an annualized basis, down from 0.73%
reported in the prior quarter and from 0.83% in the year-ago
PNC Financial's provision for credit losses during the quarter
was $318 million, up 39% sequentially. This was mainly
attributable to a larger loan portfolio and reduced reserve
release in commercial lending.
PNC Financial's capital ratios remained strong in the reported
quarter. The positive impact from the growth in retained earnings
more than offset the higher risk-weighted assets from loan
growth. Therefore, as of Dec 31, 2012, PNC Financial's Tier 1
common capital ratio was estimated to be 9.6% up from 9.5% as of
Sep 30, 2012.
Moreover, the Tier 1 risk-based capital ratio was projected to
be 11.7% as of Dec 31, 2012, unchanged as of Sep 30, 2012. The
estimated pro forma Basel III Tier 1 common capital ratio was
7.3% as of Dec 31, 2012 without benefit of phase-ins, based on
current understanding of Basel III proposed rules, estimates of
Basel II (with proposed modifications) risk-weighted assets and
application of Basel II.5 rules.
As of Dec 31, 2012, total assets under administration were
$224 billion, up 1% from the previous quarter.
Capital Deployment Update
In April 2012, the company announced plans to buyback up to
$250 million of common stock under its existing 25 million share
repurchase program through the rest of 2012. During the fourth
quarter, the company bought back shares worth $55 million under
this share buyback authorization. During 2012, the company bought
back shares worth $190 million.
Among PNC Financial's peers,
The Bank of New York Mellon Corporation
) reported its fourth-quarter 2012 earnings of 53 cents per
share, which was line with the Zacks Consensus Estimate. However,
it compared unfavorably with prior quarter's earnings of 61
Lower top line and higher operating expenses adversely
impacted the results in the quarter. Yet, asset quality continued
to show improvements and capital ratios remained
We believe that PNC Financial is well positioned to grow given
its diverse revenue mix, balance sheet strengthening efforts,
strategic acquisitions and solid capital levels. Moreover, the
company's acquisition of RBC Bank (USA) was accretive to its 2012
earnings, excluding the integration costs. Stress test clearance,
dividend hikes and share buybacks were also the positive
Yet, a protracted economic recovery, continued low interest
rate environment, increased regulatory headwinds as well as
elevated mortgage repurchase costs seem to limit the growth in
profitability to some extent.
PNC Financial shares maintain a Zacks Rank #3 (Hold).
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