The PNC Financial Services Group, Inc. 's ( PNC ) first-quarter
2013 earnings per share of $1.76 significantly exceeded the Zacks
Consensus Estimate of $1.57. Moreover, results beat the earnings
per share of $1.44 recorded in the prior-year quarter.
Better-than-expected results reflected improved top line.
Moreover, lower nonperforming assets, reduced operating expenses
along with healthy capital levels were the positives. However, an
increase in provision for credit losses and net charge-offs were
Net income reported was $1.0 billion in the quarter under review,
up from $811 million in the prior-year quarter.
Quarter in Detail
Total revenue was recorded at $4.0 billion, up 6% year over year.
Higher net interest income and elevated non-interest income led to
the rise. However, revenues were marginally below the Zacks
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Net interest income came in at $2.4 billion, increasing 4% year
over year. Higher core net interest income from organic loan
growth, reduced funding costs and the full quarter impact of the
RBC Bank (USA) acquisition positively benefited the interest
income. However, net interest margin decreased 9 basis points (bps)
year over year to 3.81%.
Non-interest income surged 9% year over year to $1.6 billion. The
upsurge reflected lower provision for residential mortgage
repurchase obligations, elevated asset management, corporate and
consumer services fees and higher other non-interest income. These
positives were partially offset by reduced residential mortgage
Also, the company's non-interest expense was $2.4 billion, down 2%
from the prior-year quarter. The dip in expenses primarily
reflected lower marketing and other expenses, partially offset by
higher personnel, equipment and occupancy costs along with
full-quarter operating expenses for the RBC Bank (USA)
The company remains on track to reduce full-year 2013 non-interest
expense from 2012 levels and realize $700 million in expense
savings in 2013.
Credit quality was mixed in the quarter at PNC Financial.
Nonperforming assets decreased 10% year over year to $3.9 billion.
Nonperforming assets to total assets were 1.31% as of Mar 31, 2013,
down from 1.47% as of Mar 31, 2012.
Moreover, the allowance for loan and lease losses to total loans
was 2.05% as of Mar 31, 2013, down from 2.38% in the prior-year
However, net charge-offs ascended 37% year over year to $456
million in the quarter, including charge-offs of $134 million
mainly related to home equity and residential real estate loans to
comply with the regulatory guidance.
PNC Financial's provision for credit losses during the quarter was
$236 million, up 28% year over year. This was mainly attributable
to a larger loan portfolio.
PNC Financial's capital ratios remained strong in the reported
quarter. The positive impact from the growth in retained earnings
was partly offset by higher risk-weighted assets from loan growth.
Therefore, as of Mar 31, 2013, PNC Financial's Tier 1 common
capital ratio was estimated to be 9.8% up from 9.3% as of Mar 31,
Moreover, the Tier 1 risk-based capital ratio was projected to be
11.7% as of Mar 31, 2013, up from 11.4% as of Mar 31, 2012. The
estimated pro forma Basel III Tier 1 common capital ratio was 7.9%
as of Mar 31, 2013 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 2.5 rules.
As of Mar 31, 2013, total assets under administration were $236
billion, up 17% from the prior-year quarter. Total loans stood at
$186.5 billion, up 6% year over year. Further, total deposits
increased 3% year over year to $211.6 billion.
Capital Deployment Update
In Apr 2013, PNC Financial's board of directors increased the
quarterly cash dividend on common stock to 44 cents per share,
reflecting an increase of 4 cents, or 10% over the prior dividend.
The dividend will be paid on May 5, 2013, payable the next business
The increase in dividend follows the Federal Reserve's approval of
the company's capital plan in Mar 2013. However, the share
repurchase program for 2013 was not included in the capital plan
due to the company's acquisition of RBC Bank (USA) and its
expansion into the Southeastern markets.
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 earnings,
excluding integration costs. Stress test clearance and dividend
hikes were also positive catalysts.
Yet, a protracted economic recovery, continued low interest-rate
environment and increased regulatory headwinds seem to limit the
growth in profitability to some extent.
PNC Financial currently retains a Zacks Rank #3 (Hold).
Among other major banks, Morgan Stanley ( MS ) and Fifth
Third Bancorp ( FITB ) will report
first-quarter 2013 results on Apr 18, while First Horizon
National Corporation ( FHN ) will report on