The PNC Financial Services Group, Inc.
) reported an earnings surprise of almost 13%, which was
primarily attributable to the company's efforts to realign its
branch network in a cost-effective manner. The company's
fourth-quarter 2013 earnings per share of $1.85 outpaced the
Zacks Consensus Estimate of $1.64. Moreover, this compared
favorably with $1.24 earned in the prior-year quarter.
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For the year 2013, the company earnings per share of $7.39
outpaced the Zacks Consensus Estimate of $7.19. Further, this
compared favorably with $5.30 earned in the prior year.
Better-than-expected results were primarily driven by decrease in
both operating expenses and provision for credit losses. Further,
marginal improvement in the top line, an enhanced credit quality
and healthy capital ratios were the positives. However, a fall in
net interest income was a concern.
The company reported net income attributable to common
shareholders of $998.0 million in the reported quarter, up 50%
from the year-ago quarter. For 2013, the company reported net
income applicable to shareholders of $4.0 billion, up 40% year
Quarter in Detail
Total revenue came in at $4.1 billion, nudging up 0.1% year over
year. The rise was mainly due to higher non-interest income.
Total revenue was also above the Zacks Consensus Estimate of $3.9
For 2013, total revenue came in at $16.0 billion, up 3% year over
year. Further, total revenue eclipsed the Zacks Consensus
Estimate of $15.7 billion.
Net interest income (NII) was $2.3 billion, decreasing 7% year
over year. The fall was mainly due to lower purchase accounting
accretion and reduced core net interest income, which was driven
by fall in yields on loans and securities, partially offset by
lower rates paid on deposits and borrowed funds as well as loan
growth. Moreover, net interest margin (NIM) decreased 47 basis
points (bps) year over year to 3.38%.
Non-interest income increased 10% year over year to $1.8 billion.
The rise was mainly due to the release of reserves for
residential mortgage repurchase obligations in fourth-quarter
2013 as compared with the provision in the prior-year quarter.
Strong growth in client fee income was driven by rise in asset
management revenues, consumer service fees and service charges on
Further, the company's non-interest expense was $2.5 billion,
down 10% from the prior-year quarter. The fall reflected
disciplined expense management through all verticals and lower
expenses for residential mortgage foreclosure-related matters,
which was partly offset by higher legal accruals and a higher
contribution to the PNC Foundation.
PNC Financial's overall credit quality improved in the said
quarter. Nonperforming assets fell 9% year over year to $3.5
billion due to improvement in commercial lending portfolios and
other real estate owned and foreclosed assets. Nonperforming
assets to total assets was 1.08% as of Dec 31, 2013, down 16 bps
from the year-ago quarter.
Moreover, the allowance for loan and lease losses to total loans
was 1.84% as of Dec 31, 2013, decreasing 33 bps from the
prior-year quarter. Net charge-offs fell 39% year over year to
$189 million. Additionally, provision for credit losses was $113
million, down 64% year over year.
PNC Financial's capital ratios also improved in the quarter. As
of Dec 31, 2013, the company's Tier 1 common capital ratio was
10.5%, up from 9.6% as of Dec 31, 2012. This improvement came on
the back of growth in retained earnings. Further, Tier 1
risk-based capital ratio was 12.4% as of Dec 31, 2013, up from
11.6% as of Dec 31, 2012.
The estimated pro forma Basel III Tier 1 common capital ratio was
9.4% as of Dec 31, 2013 against 8.7% as of Sep 30, 2013.
As of Dec 31, 2013, total assets under administration were $247
billion, up 10% from the prior-year quarter. Total loans were
$195.6 billion, up 5% year over year. Further, total deposits
increased 4% from the prior-year quarter to $220.9 billion.
We believe that PNC Financial is well positioned to grow, given
its diverse revenue mix, expense control measures, balance sheet
strengthening efforts, improving credit quality, strategic
acquisitions and steady capital levels. However, a protracted
economic recovery, persistent low interest-rate environment and
increased regulatory headwinds are likely to limit the company's
PNC Financial currently carries a Zacks Rank #3 (Hold).
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