Bloomberg News

PNC Beats Analysts’ Estimates as Credit-Loss Provisions Fall

October 19, 2011

(Updates with total loans in sixth paragraph, non-interest income and expense in 10th.)

Oct. 19 (Bloomberg) -- PNC Financial Services Group Inc., the sixth-largest U.S. bank by deposits, beat analysts’ estimates as credit provisions and charge-offs decreased.

Net income fell 24 percent to $834 million, or $1.55 a share, from $1.1 billion, or $2.07, in the same period a year earlier, the Pittsburgh-based lender said today in a statement. The average estimate of 31 analysts surveyed by Bloomberg was $1.49, including adjustments for one-time items. PNC had a gain of $328 million, or 62 cents, in the third quarter last year from the sale of PNC Global Investment Servicing.

PNC, run by Chairman and Chief Executive Officer Jim Rohr, 63, is among regional lenders facing squeezed margins from low interest rates and a slowdown in loan growth amid a weaker economy.

“We increased capital and managed risk by improving overall credit quality,” Rohr said in the statement.

PNC’s credit-loss provision decreased to $261 million from $486 million in the year earlier. Net charge-offs declined to $365 million from $614 million. PNC’s revenue decreased for the third consecutive quarter, falling to $3.54 billion from $3.6 billion in the second quarter and the year-earlier period.

Total loans increased 2.93 percent to $154.5 billion from a year earlier.

‘Degrees of Losing’

“There’s becoming more of a divergence between the strong and the weak,” R. Scott Siefers, an analyst with Sandler O’Neill & Partners LP, said before results were announced. “That doesn’t necessarily mean the strong are necessarily winning. It’s just degrees of losing, so to speak.”

Banks such as PNC, Minneapolis-based U.S. Bancorp and San Francisco-based Wells Fargo & Co. are stronger than their peers but are “nowhere near their full potential,” Siefers said. U.S. Bancorp reported a 40 percent gain in the third quarter today as revenue and lending expanded. Wells Fargo said Oct. 17 that third-quarter revenue declined by 6 percent.

PNC’s net interest income fell 1.81 percent to $2.18 billion in the third quarter from a year-earlier and dropped 1.16 percent from the second quarter. The net interest margin, the difference between what a bank pays in deposits and charges for loans, narrowed to 3.89 percent from 3.96 percent.

Non-interest income fell 1.01 percent to $1.37 billion in the third quarter from last year and declined 5.72 percent from the second quarter. Non-interest expense fell to $2.14 billion in the third quarter from $2.16 billion in the year earlier period and $2.18 billion in the second quarter.

Tier 1 Capital

PNC’s Tier 1 common capital ratio widened to 10.5 percent from 9.6 percent a year earlier. Retail banking posted income of $33 million in the quarter compared with a $4 million loss in the same period a year earlier. Profit from corporate and institutional banking fell 3.7 percent to $419 million.

PNC agreed in June to pay $3.62 billion in cash and stock for Royal Bank of Canada’s U.S. retail-banking unit and related credit-card assets. The acquisition would help PNC expand in the U.S. Southeast beyond a foothold in Florida. RBC Bank USA, based in Raleigh, North Carolina, has more than 420 branches in six states. The deal is expected to close in March 2012.

In July, the bank agreed to acquire 27 branches in the Atlanta region from Flagstar Bancorp for about $42 million, giving PNC about $240 million in deposits.

PNC doesn’t see the bank making any “meaningful transactions on the horizon,” Rohr said today on a conference. The bank could continue to acquire branches in deals similar to the Flagstar transaction, he said.

Branch utilization is shrinking as customers switch to mobile and online banking, and the bank will close about 80 branches and open 50 this year, Rohr said.

PNC increased 18 cents, or 0.4 percent, to $51.40 at 11:26 a.m. in New York Stock Exchange composite trading. The shares have fallen 16 percent this year through yesterday, putting the lender seventh among the top 10 performers in the 24-company KBW Bank Index.

--Editors: William Ahearn, Steve Dickson

To contact the reporter on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.


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