PNC Financial Services Group Inc.
's (
PNC
) first-quarter 2012 earnings per share came in at $1.67,
substantially beating the Zacks Consensus Estimate of $1.45.
Results also compared favorably with earnings of $1.43 per share in
the prior quarter.
PNC Financial's upbeat performance was attributed to improved
revenue levels. Moreover, decreased non-interest expenses reflect
better expense management. Contraction in the provision for credit
losses was also on the upside. Yet, the company incurred a couple
of one-time charges in the quarter and nonperforming assets also
increased.
Notably, PNC Financial's first quarter 2012 earnings, including
5 cents per share (after tax) impact from residential mortgage
foreclosure-related expenses and 18 cents per share for integration
costs, stood at $1.44 per share.
Quarter in Detail
Total revenue for the quarter came in at $3.7 billion, up 5%
sequentially. Moreover, it also slivered past the Zacks Consensus
Estimate of $3.6 billion. The rise was primarily due to higher net
interest income.
Net interest income for the reported quarter was $2.3 billion,
up 4% sequentially. Loans from the RBC Bank (
USA
) acquisition, organic loan growth and lower funding costs were
positives for the increased net interest income. Net interest
margin climbed 4 basis points (bps) sequentially to 3.90%.
Non-interest income was up 7% sequentially to $1.4 billion. The
sequential improvement was attributed to higher client fee income,
partially offset by lower net gains on sales of securities.
Non-interest expense for the reported quarter came in at $2.5
billion, down 10% sequentially. Results were positively affected by
lower personnel, occupancy, equipment and marketing expenses.
Credit Quality
Credit quality was a mixed bag in the quarter. Nonperforming
assets increased 6% sequentially to $4.4 billion in the quarter.
The sequential increase was driven by an increase in home equity
nonperforming loans, partially offset by lower commercial and
commercial real estate nonperforming loans. Yet, the ratio of
non-performing assets to total assets decreased 4 bps sequentially
to 1.49%.
Net charge-offs climbed to $333 million, or 0.81% of average
loans on an annualized basis, from $327 million, or 0.83%, in the
prior quarter. Net charge-offs remained approximately stable as
increased home equity and commercial real estate loan net
charge-offs were largely offset by a fall in commercial loan net
charge-offs.
The provision for credit losses during the quarter was $185
million, down 3% sequentially. Moreover, the allowance to
nonperforming loans was 115% compared with 122% as of December 31,
2011.
Capital Position
As of March 31, 2012, PNC Financial's Tier 1 common capital
ratio was an estimated 9.3%, versus 10.3% as of December 31, 2011.
The Tier 1 risk-based capital ratio was an estimated 11.4% as of
March 31, 2012, compared with 12.6% in the prior quarter. The
sequential declines in the Tier 1 common and Tier 1 risk-based
capital ratios were due to higher risk-weighted assets and goodwill
related to the RBC Bank (
USA
) acquisition.
As of March 31, 2012, total assets under administration were
$219 billion, up from $210 billion in the prior quarter.
Capital Deployment Update
In April 2012, PNC Financial has announced a 14% hike in its
quarterly dividend. The increased quarterly cash dividend now
stands at 40 cents per share, up 5 cents from 35 cents paid
earlier. The dividend will be paid on May 5, 2012 to shareholders
of record as of the close of business April 17, 2012.
Moreover, the company plans to buyback up to $250 million of
common stock under its existing 25 million share repurchase
program. The shares will be purchased through open market or
privately negotiated transactions through the rest of 2012.
Performance by peer
Among PNC Financial's peers-
JPMorgan Chase & Company
(
JPM
) reported first quarter earnings per share of $1.31, topping the
Zacks Consensus Estimate of $1.17. This also compares favorably
with $1.28 earned in the prior-year quarter.
JPMorgan's better-than-expected earnings signals good going by
the sector as it has exposure in almost all banking businesses.
Marked recovery of the bond and equity market and consequent
revenue growth, which helped JPMorgan to bounce back, should lift
the results of other mega-banks during the quarter.
Another peer-
BB&T Corporation
(
BBT
) will be reporting its first-quarter 2012 earnings on April 19,
before the market opens.
Our Viewpoint
PNC Financial's continued strengthening of balance sheet, with
focus on risk and expense management, should propel its earnings
ahead. Moreover, top-line growth reflected the company's strength.
Lately, the company completed the purchase of RBC Bank (
USA
), the U.S. retail banking subsidiary of
Royal Bank of Canada
(
RY
). The acquisition was accretive to reported quarter earnings,
excluding integration costs.
The acquisition facilitated PNC Financial to expand its
footprint in the Southeast markets by adding over 400 branches to
its network. It marked PNC Financial's seventh successful
acquisition in the past eight years. However, increase in
nonperforming assets and the regulatory issues remain a
concern.
In Conclusion
An investor with an appetite to absorb risks related to the
market volatility should not be disappointed with investments in
PNC Financial over the long haul. PNC Financial's fundamentals
remain highly promising with a diverse business model and a strong
balance sheet.
Also, from the risk perspective, as PNC Financial cleared the
most difficult stress test, it is for sure that PNC Financial would
be able to withstand another financial crisis.
Moreover, one can consider a company like PNC Financial as value
investment due to its steady dividend-yielding nature. The company
announced a 14% increase in its quarterly dividend to 40 cents per
share. Prior to this, the company had increased its quarterly
dividend significantly to 35 cents from 10 cents in April 2011.
The redemption of TruPS by PNC Financial also followed the green
signal from the Federal Reserve for the company's capital actions.
By redeeming TruPS PNC Financial was being able to lower the
interest costs, as these securities demand higher rates compared to
others.
PNC Financial shares maintain a Zacks #3 Rank, which translates
into a short-term 'Hold' recommendation. Considering the
fundamentals, we also maintain our long-term "Neutral" rating on
the stock.
BB&T CORP (
BBT
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
PNC FINL SVC CP (
PNC
): Free Stock Analysis Report
ROYAL BANK CDA (
RY
): Free Stock Analysis Report
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