PNC Misses but Margin Expansion Offers Hope (Update 1)

• PNC reports second-quarter earnings of 98 cents a share, missing the consensus estimate of $1.24.
• Second-quarter results include mortgage putback charges of $284 million, or 54 cents, and $119 million in other charges for trust preferred redemptions and merger integration expenses.
• Net interest income grows 10% sequentially, reflecting a full quarter benefit the March 2 RBC Bank (USA) acquisition; net interest margin expands to 4.08%.

Updated with comment from Stifel Nicolaus analyst Christopher Mutascio and market close information.

NEW YORK (TheStreet) -- PNC Financial Services Group (PNC) of on Wednesday reported that its net interest margin during the second quarter expanded to 4.08% from 3.90% the previous quarter, and 3.93% a year earlier, running counter to the trend for most large regional banks in the prolonged low-rate environment.

The Pittsburgh lender reported a second-quarter net income of $546 million, or 98 cents a share, missing the consensus estimate of a profit of $1.24 a share, among analysts polled by Thomson Reuters.

The second-quarter results included a mortgage putback provision of $284 million, or 54 cents a share after tax, noncash charges of $85 million, or 16 cents a share, related to trust preferred share redemptions, and integration expenses of $34 million, or six cents a share, related to the acquisition of RBC Bank (USA) on March 2.

In comparison, PNC earned $811 million, or $1.44 a share, during the first quarter, and $912 million, or $1.67 a share, during the second quarter of 2011.

PNC's shares pulled back 1% to close at $61.01.

The company reported that its net interest income during the second quarter totaled $2.5 billion, increasing 10% from the previous quarter and reflecting a full quarter benefit from the RBC Bank (USA) acquisition, as well as the redemption of roughly $1.8 billion in trust preferred shares.

PNC said that excluding the mortgage putback provision, second-quarter noninterest income increased 4% sequentially.

PNC had $299.6 billion in total assets as of June 30. Total loans grew 2% during the second quarter, with commercial loans increasing by 3% to $104.1 billion, at the end of the second quarter, "as a result of strong loan growth primarily in corporate banking, real estate finance and asset-based lending," according to the company.

Total deposits grew slightly during the second quarter, to $206.9 billion, as of June 30.

The company estimated that its June 30 Tier 1 common equity ratio was 9.3% as of June 30, unchanged from the previous quarter, and said "{NC expects to reach its Basel III Tier 1 common capital ratio goal of 8.0 to 8.5 percent by year end 2013 without benefit of phase-ins, based on Basel III proposed rules and including application of Basel II and Basel II.5 rules."

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